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Abu Dhabi, UAETuesday 13 November 2018

Delay in Aramco IPO is unlikely to hamper Saudi Arabia’s GDP, says IMF

Kingdom is implementing “plenty of other reforms” to boost economy, fund official says

Saudi Arabia’s capital, Riyadh. The kingdom's non-oil economy expanded marginally in August. Bloomberg
Saudi Arabia’s capital, Riyadh. The kingdom's non-oil economy expanded marginally in August. Bloomberg

Any delay in the planned listing of Saudi Aramco, the world’s biggest oil producing company, is unlikely to dent Saudi Arabia’s overall economic growth, which is estimated at 1.9 per cent for this year, an official from the International Monetary Fund said.

“There are plenty of other reforms that the kingdom is undertaking that will ensure the outlook for Saudi Arabia is bright in the next couple of years,” Tim Callen, the IMF’s mission chief for the kingdom, told reporters in a conference call on Friday.

The country confirmed its commitment to the Aramco initial public offering originally planned for the end of this year, dispelling media reports that the sale had been shelved.

Authorities had said they were aiming for a possible listing by the end of 2018. Saudi Oil Minister Khalid Al Falih said this month, it would “most likely” happen next year.

The IMF did not factor in an Aramco listing in its growth forecast for the kingdom this year or last “due to continued uncertainty” over the plans, so any delay would not have an impact its projections, Mr Callen said as the IMF published its annual review of the Saudi economy.

Saudi Arabia’s overall GDP is projected to rise to 1.9 per cent in 2018 from a contraction of 0.9 per cent last year, and non-oil GDP growth is projected to grow at 2.3 per cent this year, the Washington-based lender’s report said. Non-oil growth is expected to “continue to strengthen as the government makes further progress on fiscal reforms”, Mr Callen said.

Among the reforms the kingdom has already implemented as part of its Vision 2030 economic transformation strategy are the introduction of a 5 per cent VAT in January, far-reaching reforms to its capital markets and the enactment of new bankruptcy legislation this month to support corporate financial restructuring.

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Read more:

Saudi Arabia 'fully committed' to Aramco IPO, oil minister says

Saudi Aramco pledges continued investment to meet rising oil demand

IMF commends Saudi Arabia on 'good progress' on implementing Vision 2030

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In its report, the IMF said Saudi economic growth will pick up as government spending rises on the back of an increase in oil prices. While the kingdom is making good progress on its reforms, it must be careful not to become complacent and overspend, given the recent oil price increase. Brent crude closed on Friday up 1.5 per cent to $75.8 per barrel.

Mr Al Falih said the government “remains committed to the IPO of Saudi Aramco at a time of its own choosing when conditions are optimum”.

But analysts said the IPO — which would be the world’s biggest listing — could be delayed by a couple of years. Aramco’s announcement this month that it is in talks to acquire a major stake in Sabic, the region’s biggest chemicals company, has also cooled off the rush to list the energy company.

Mr Callen said that while a listing delay would not alter the kingdom’s overall economic outlook, it would mean reduced revenues for sovereign wealth fund the Public Investment Fund. An Aramco listing has been cited by Saudi authorities as a source of future proceeds for PIF, he said, so “that would need to be re-thought”.