Saudi economy set for growth as reforms take hold: IMF

Saudi Arabia's economy is poised for growth in 2018, and over the medium term, as the Kingdom’s ambitious reform program takes hold, the International Monetary Fund (IMF) said in a statement.

“Saudi Arabia is making good progress in implementing its ambitious reform program under Vision 2030,” said Tim Callen, IMF mission chief to Saudi Arabia, wrote in a note issued on Tuesday.

“The government remains committed to wide-ranging economic and social reforms to transform the economy away from its traditional reliance on oil and to create a more dynamic private sector that creates jobs for the growing working-age population."

The IMF official lauded the introduction of value-added tax (VAT), calling it is a “milestone achievement in strengthening the tax culture and tax administration of the country”.

"The recent energy price reforms and the introduction of the citizens’ accounts are welcome. Further gradual energy price increases should continue, while the citizens’ accounts should be reviewed periodically to confirm they are adequately compensating low and middle-income households for the higher energy/VAT costs," he added.

The IMF also praised the Kingdom’s reforms to strengthen the budget process and the fiscal framework, increase fiscal transparency and develop macro-fiscal analysis and achieving "considerable progress" in improving the business climate.

“While the public sector can be a catalyst for the development of some new sectors, it is important that it does not crowd-out private sector involvement, nor remain a long-term player in markets where private enterprises can thrive on their own,” Callen said.

However, the IMF warned that the primary challenges for the government are to sustain the implementation of reforms, achieve the fiscal targets it has set, and resist the temptation to re-expand government spending in line with higher oil prices.

“Targeting a balanced budget in 2023 is appropriate. The government should now focus on delivering on this objective. Limiting the growth of government spending will be necessary to achieve the fiscal targets," Callen said.

Meanwhile, the IMF urged the Kingdom to accelerate the pace of recently approved privatization/PPP program, and focus on removing structural impediments that may dissuade financial institutions from entering these markets.

Commenting on the Saudi Riyal/US Dollar peg, Callen said that the exchange rate peg to the dollar continues to serve Saudi Arabia well given the structure of the economy.