IMF urges Saudi Arabia to maintain reforms amid oil price recovery
Economy to grow 1.9% in 2018, boosted by economic reforms and oil output increases
The International Monetary Fund urged Saudi Arabia to accelerate its privatisation programme and warned against slowing the pace of its economic reforms as oil prices recover.
Saudi Arabia's reform agenda is progressing well, the IMF said in a report on Tuesday following consultations with the authorities. If oil prices rise higher than the levels accounted for in the budget, the government should save the additional revenues to rebuild its fiscal buffers.
"Higher oil prices should not slow the reform momentum," the fund said. It emphasised the importance of implementing "revenue reforms and limiting the future growth of government spending to achieve this objective."
Saudi's economy is projected to grow 1.9 per cent this year after shrinking 0.9 per cent last year as the reforms kick in and oil output increases, according to IMF forecasts. Inflation is forecast at three per cent in 2018, with the introduction of VAT and higher domestic energy prices, before stabilising at two per cent in the medium term. Saudi's fiscal budget is expected to continue narrowing from 9.3 per cent of the GDP last year to 4.6 per cent this year and further to 1.7 per cent in 2019. Saudi introduced a package of social and economic measures to diversify revenue away from oil, boost private sector participation and create jobs for nationals.
The IMF urged Saudi authorities to continue implementing new revenue measures, such as preparing to lower the VAT registration threshold next year.
While it welcomed the government's plan to gradually increase energy prices, it called for more communication about future price hikes. It also stressed the importance of ensuring adequate payments to compensate low and middle-income households for the impact of these increases.
In April, the kingdom said it aimed to generate 35 billion to 40bn riyals in non-oil revenues from its privatisation program by 2020 and create up to 12,000 jobs. The plan will target 14 public-private partnership investments worth 24bn to 28bn riyals.
The IMF noted the progress on privatisation and public-private partnerships plans and said it should be implemented at a faster pace. It agreed that the "public sector could be a catalyst for the development of new sectors, but emphasised that this should not crowd-out the private sector."
Addressing employment reforms in the kingdom, including creating more private sector jobs for nationals, the IMF said these policies "should focus on levelling the playing field between Saudis and expatriates."
Reforming the visa system for expatriate workers, strengthening education and training, and addressing remaining constraints to female employment are among the key changes, it said.
Updated: July 24, 2018 08:26 PM