Press Release: IMF Mission Statement at the Conclusion of Article IV Discussions with Saudi Arabia
May 20, 2013Press Release No. 13/184
May 20, 2013
An International Monetary Fund (IMF) team led by Mr. Tim Callen, IMF Mission Chief to Saudi Arabia, held discussions during May 5-18 on the 2013 Article IV Consultation with Saudi Arabia. At the conclusion, Mr. Callen made the following statement:
“Saudi Arabia has been one of the best performing economies of the G-20 in recent years, with the average rate of real GDP growth during 2008-12 third behind China and India. The fiscal position is also very strong with the lowest debt-to-GDP ratio and the highest fiscal balance among the G-20 economies. The outlook is positive. According to the IMF, the non-oil private sector of the economy is projected to grow by 7.6 percent in 2013, continuing the strong growth seen in recent years. Overall GDP growth is expected at 4.4 percent. This is because oil output is likely to be lower than its average level in 2012 and the growth rate of government spending looks set to slow. Inflation has picked-up since the middle of 2012 due to higher food prices and price increases in restaurants, hotels, and transportation, but remains contained at 4 percent. According to the IMF, while lower oil output and oil prices will likely result in smaller fiscal and current account surpluses in 2013, they will remain substantial.
“Saudi Arabia is playing a systemic role in the world economy by helping provide stability to the global oil market. In line with this role, Saudi Arabia increased oil production in 2011 and 2012 that helped prevent supply disturbances in other countries from having a negative impact on global growth. Within the Middle East region, Saudi Arabia is a generous provider of financial assistance, and large remittance flows from expatriates working in the country provide important income flows to countries in the region and in south Asia.
“The Saudi population is young and increasingly well-educated. As it enters its working-age years, there is a tremendous opportunity to boost growth and raise living standards further. There will also be challenges in terms of creating jobs, addressing housing needs, and managing the demand on the natural resources of the country. Reforms are underway to address these challenges.
“Creating jobs for the growing Saudi population of working age is understandably a key priority for the government. A number of initiatives are advancing to increase the employment of nationals in the private sector and provide support to those who are seeking work. Ultimately, increased employment of Saudis in the private sector will require a combination of reduced reliance on jobs in the public sector, measures to increase the competitiveness of Saudi workers in the private sector including through continued efforts to strengthen education and training, and expanded opportunities for women. Maintaining strong growth in the private sector is important to ensure that jobs are being created. The government is investing in the infrastructure of the economy, particularly in transportation, and is adopting a number of measures that are aimed at strengthening the small and medium-sized enterprise (SME) sector.
“With a growing population, domestic energy consumption is likely to continue to grow strongly. The government is responding by improving energy efficiency and developing alternate energy sources. Nevertheless, the IMF mission considers that an upward adjustment of energy prices over time will likely be needed to curb the growth of domestic energy consumption. International experience with energy price reform suggests that it needs to be well-planned, phased, and clearly communicated. It is also essential to implement mitigating measures to protect lower income groups.
“Macroeconomic policies need to remain vigilant for signs that continued strong economic growth is leading to increased inflationary pressures. The government’s fiscal policy looks set to appropriately slow the pace of spending growth this year after the large increases in 2011 and 2012. This will help contain demand pressures. If inflation were to pick up more than expected or evidence of supply bottlenecks were to emerge, then either macro-prudential policy would need to be adjusted or capital spending projects slowed.
“The fiscal position is very strong. In recent years, the government has run large budget surpluses, reduced debt to very low levels, and built up considerable financial assets. Budget management has been considerably strengthened. From this position of strength, now is a good time to consider further fiscal reforms. In this context, we encourage the government to further develop fiscal tools, including those dealing with oil price uncertainty.”
IMF COMMUNICATIONS DEPARTMENT