Arab News, Thursday, May 16, 2019 | Ramadan 11, 1440
Saudi economic reforms ‘yielding positive results,’ says IMF
Saudi Arabia: Economic reforms underway in Saudi Arabia
have started to yield “positive results,” the IMF said on Wednesday — although
the fund cautioned that challenges, notably the level of government spending,
The International Monetary Fund (IMF) issued its preliminary findings on the
Kingdom’s economy following an official staff visit to the country, prior to the
preparation of a final report.
It found that reforms under the Vision 2030 program — the ambitious plan to
diversify Saudi Arabia’s economy set out three years ago — were paying off.
“Reforms to the capital markets, legal framework, and business environment are
progressing well,” the IMF said.
“Non-oil growth has picked-up, female labor force participation and employment
Other factors the IMF cited include the “successful introduction” of value-added
tax (VAT), energy price reforms, and an increase in fiscal transparency.
But several challenges remain, the IMF cautioned.
“Government spending has risen, supporting growth but raising medium-term fiscal
vulnerabilities to lower oil prices. Fiscal consolidation is needed to reduce
these vulnerabilities. More generally the economic footprint of the public
sector is still large,” it said.
The IMF said unemployment among Saudi nationals remains high.
“To deliver a diversified, productive and competitive economy, reforms need to
make Saudi nationals more competitive for private sector jobs, raise foreign
direct investment, and increase the availability of finance for young and
growing companies,” it said.
The fund said Saudi Arabia’s non-oil sector is expected to grow at a faster rate
this year, at 2.9 percent.
Yet the IMF said it expects Saudi Arabia’s fiscal deficit — the difference
between government spending and revenues — to rise to 7 percent of GDP in 2019,
from 5.9 percent last year.
It urged fiscal consolidation to reduce the impact of “medium-term”
“If oil prices are lower than assumed in the government’s budget plan, the
country would face large fiscal deficits unless spending was reduced,” it said.
The fund said lowering the government wage bill and considering increasing the
VAT rate should be considered.
“A reduction in the government wage bill, a more measured increase in capital
spending, and the better targeting of social benefits will all yield fiscal
savings. The introduction of the VAT has been very successful, and consideration
should be given to raising the rate from 5 percent, which is low by global
standards, in consultation with other GCC countries,” it said.