## _cr14292

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---

### Economic performance and recent developments
- Saudi Arabia’s economy has grown very strongly and been one of the best performing in the G-20.
- Growth drivers: high oil prices and output, strong private sector activity, and government spending.
- Real GDP growth:
  - 2013: real GDP growth = 4 percent.
  - 2012: real GDP growth = 5.8 percent.
  - Oil output: 1 percent decline in 2013.
  - Non-oil private sector growth (2013) = 6 percent.
- Labor market:
  - Overall unemployment rate at end-2013 = 5.5 percent.
  - Unemployment rate of Saudi nationals fell from 12 percent to 11.5 percent during the year.
  - Female unemployment rate fell from 35.7 percent to 32.1 percent.
  - Male unemployment rate held steady at about 6 percent.
  - Female labor force participation rose from 12.6 percent at end-2006 to 16.4 percent at end-June 2013.
- Inflation:
  - April 2013 = 4 percent → May 2014 = 2.7 percent.
  - Projected CPI: 2014 (avg) = 2.9 percent; 2017 = 3.6 percent.
- Credit and real estate:
  - Bank credit to private sector peak = 16.4 percent (May 2013) → 11.8 percent (April 2014).
  - Real estate lending by banks grew by around 30 percent over the past year (from a low base) following the mortgage law passage in July 2012.
- Financial markets:
  - Equity prices rose by around 30 percent since mid-2013.
  - Price-earnings ratio rose from around 15.5 in mid-2013 to 19 at present (as of the report).

### Fiscal position, outlook, and policy recommendations
- Current fiscal position:
  - Fiscal surplus: 12 percent of GDP (2012) → 5.8 percent of GDP (2013).
  - Government debt declined to 2.7 percent of GDP (noted elsewhere as 2¾ percent of GDP).
  - Government deposits at SAMA increased to around 60 percent of GDP, sufficient to cover 20 months of spending.
  - Breakeven oil price: $78 a barrel (2012) → $89 a barrel (2013).
- Projections:
  - Fiscal surplus expected to decline to 2.5 percent of GDP in 2014.
  - Budget projected to move into deficit in 2015.
  - Overall fiscal deficit expected to deteriorate further to almost 7½ percent of GDP by 2019.
  - Non-oil primary fiscal deficit (percent of non-oil GDP) = 59.5 percent (2013); projected to decline to 50 percent by 2019.
  - Public investment projected to rise as a share of GDP until 2016, then ease slightly but remain high.
- Risks to buffers:
  - Government deposits at SAMA projected to drop by about 55 percent between 2013 and 2019 (and in 2019 would be sufficient to cover 6½ months of spending).
  - Low oil price scenario: a $25 drop below baseline in 2015 persisting to 2019 would exhaust government deposits by 2018 if spending did not adjust.
- Staff recommended adjustment scenario:
  - Reduce the non-oil fiscal deficit by about 3 percent of non-oil GDP a year during 2014–19 relative to the 2013 budget outcome to ensure government deposits remain sufficient.
  - Assuming a medium-term fiscal multiplier of 0.5, this consolidation could slow non-oil GDP growth by up to 1 percent a year by the end of the projection period.
  - Structural balance computed using a 5-year backward oil price rule and a 3-year backward average of oil exports; targeting a positive structural balance over time would allow accumulation of savings for future generations.
- Fiscal consolidation and reform measures suggested:
  - Expenditure: civil service review to identify eliminable positions, prioritize/delay/cancel capital projects, review project processes for cost savings.
  - Revenue: increase non-oil revenues (consider tax on higher-end property or vacant land, increase fees/charges for government services, increase energy prices preferably coordinated at the GCC level).
  - Fiscal framework reforms: full account of planned expenditures including surplus fund spending; medium-term budgetary framework anchored on structural oil revenues; update 5-year development plan on a rolling basis; introduce GFMIS; establish a well-staffed macro-fiscal unit; publish fiscal data in GFSM2001 format (publication expected in early 2015).

### External sector and reserves
- Current account:
  - Current account surplus = around 18 percent of GDP (2013).
  - Projected to narrow to 7 percent of GDP by 2019.
  - Non-oil current account is in a large deficit.
- Remittances:
  - Remittance outflows increased by 19 percent in 2013 due to expatriate workers returning home.
  - Remittance outflows expected to continue rising due to construction projects reliant on expatriate workers.
- Reserves and SAMA assets:
  - SAMA’s total net foreign assets (US$ billions): 2013 = 716.7; 2014 = 768.5; projected 2019 = 704.7 (Table series).
  - SAMA’s gross foreign assets projected to decline to 25 months of import coverage by end of the projection period.
  - Government Deposits at SAMA (Billions SAR): 2013 = 1,641.5; projected 2019 = 745.0.

### Risks, transmission channels, and scenario-specific policy responses
- Overall risk characterization: risks broadly balanced; main transmission channel = oil market (prices and export quantities).
- Upside risks:
  - Higher oil prices or production; stronger-than-expected government spending; wealth effects from rising equity prices.
- Downside risks:
  - Weaker global oil market; equity bubble and correction; faster-than-expected increase in U.S. oil output or other countries’ output.
- Risk Assessment Matrix summaries and policy responses:
  - Surges in global financial market volatility (related to UMP exit):
    - Relative likelihood: High.
    - Expected impact: Medium/Low.
    - Policy response: Fiscal policy can respond given buffers; SAMA can provide liquidity; monitor pass-through to lending rates given peg.
  - Protracted slower growth in advanced and emerging economies:
    - Relative likelihood: High; Expected impact: Medium/Low; Policy response: fiscal buffers and SAMA liquidity.
  - Sustained decline in oil prices (medium-term):
    - Relative likelihood: Medium; Expected impact: High.
    - Policy response: Use fiscal and external buffers to smooth expenditures; adjust fiscal spending if buffers deplete; monitor bank balance sheets.
  - Growth slowdown in China:
    - Relative likelihood: Medium/Low; Expected impact: Medium; Policy response: fiscal buffers and SAMA liquidity support.
  - Regional geopolitical risks:
    - Relative likelihood: Medium (Russia/Ukraine); Low (Middle East); Expected impact: Low.
    - Policy response: Save additional revenues from temporary positive oil shocks.
  - High liquidity driving an equity bubble then bursting:
    - Relative likelihood: Medium; Expected impact: Low.
    - Policy response: monitor risks; consider limits on lending for equity investments; if ineffective, reduce liquidity including raising reserve requirement ratio.

### Monetary policy, macroprudential, and liquidity management
- Current stance: monetary and macroprudential settings appropriate at present; no changes over past year as inflationary pressures eased and financial conditions remained stable.
- Macroprudential recommendations:
  - Develop a formal, clear, and transparent macroprudential framework giving SAMA a mandate for financial stability and codifying coordination across regulators.
  - Use macroprudential toolkit linked to macroeconomic and financial developments (loan-to-deposit ratio, loan-to-income ratio, debt-service-to-income ratio, limits on concentrated exposures) in a countercyclical way.
  - Encourage publication of SAMA’s EWS indicators, including the house price index under development; SAMA plans to publish a financial stability report for the first time.
- Liquidity management recommendations:
  - Introduce a formal liquidity forecasting framework and review liquidity management tools to better manage banking system liquidity and strengthen monetary policy transmission.
  - Rationale: current SAMA bill issuance mechanics (quantity and price set centrally, ceiling revised infrequently) contribute to liquidity volatility; forecasting would allow varying amount and maturity of SAMA bills.

### Financial sector resilience and spillovers
- Inward spillovers:
  - Saudi stock market and domestic interbank and SAMA bill market were largely unaffected by tapering discussions and implementation since 2013.
  - January’s emerging market turmoil had almost no impact on Saudi financial markets.
  - Regional developments produced larger spillovers (example: Syrian standoff in late August 2013).
  - Stress tests suggest direct impact of Fed tapering on banking system likely small.
- Banking system strength:
  - Provisioning levels increased to over 150 percent of gross non-performing loans at end-2013 (Financial soundness indicators also show total provisions to gross NPLs = 157.4 in 2013).
  - Banks likely to benefit from a modest rise in interest rates that does not significantly affect NPLs; a larger rise in interest rates may affect non-interest bearing deposits.
  - Banking system well-capitalized, liquid, and profitable; regulatory capital to risk-weighted assets = 17.9 (2013).
- Outward spillovers:
  - Remittance outflows are important to regional and South/South-East Asian economies.
  - Strong domestic demand has generated strong import growth.
  - Saudi Arabia is a significant provider of financial assistance to Arab states: Total Amount Disbursed = 10,867 (US$ million); Amount Committed = 22,666 (US$ million). (Table entries preserved exactly as presented, including a formatted anomaly: Bahrain: Amount Disbursed 69?.)

### Pension system (Box 1)
- Structure and benefits:
  - Mandatory public pension system with a gross replacement rate of 100 percent.
  - Pension income not taxed.
  - Administered by PPA (government civilian and military) and GOSI (private sector); “exchange of benefits” preserves service years/contributions across sectors.
  - Benefits include retirement, disability, survivor benefits, and a lump-sum benefit.
- Payments and assets:
  - Total payments rose to SAR 62 billion in 2013 (three times 2004 levels).
  - Total benefits paid (annual flows): 2004 = 20.6; 2008 = 33.9; 2012 = 56.8; 2013 = 62.1.
  - Pension assets reached SAR 939 billion (2013).
  - Pension Fund Assets (SAR billion) — Total: 515.6 (2004); 634.8 (2008); 838.1 (2012); 939.1 (2013).
  - PPA foreign assets, net (share of total): 26 (2004); 26 (2008); 50 (2012); 52 (2013).
  - GOSI foreign assets, net (share of total): 31 (2004); 33 (2008); 36 (2012); 36 (2013).
  - SAR 449 billion was held at SAMA as of end-2012 (comprising 16.3 percent of GDP).
  - Rate of return on investment amounted to 9.8 percent for the PPA in 2012.
- Sustainability and demographics:
  - Current demographics (young population, rise in subscribers) keep pension system financially sound in the near term.
  - Subscribers to GOSI almost doubled between 2004 and 2013 (to some 18 million).
  - OECD study estimate: public expenditure on pensions to grow from 2.2 percent of GDP (2010) to 7.1 percent of GDP by 2050.
- Reforms under consideration:
  - Shura Council considering raising retirement age for government employees.

### Key statistics and selected projections (exact figures preserved)
- Government debt = 2.7 percent of GDP.
- Proven oil reserves = 266 billion barrels.
- Estimated spare production capacity = 2.7 million barrels a day.
- Real GDP growth projections: 2014 and 2015 = 4½ percent; near-term non-oil growth = 5½ percent; medium-term non-oil private sector growth = 5¾ percent.
- Inflation: 4 percent (April 2013) → 2.7 percent (May 2014); projected 3.6 percent by 2017.
- Bank credit growth to private sector: peak 16.4 percent (May 2013) → 11.8 percent (April 2014).
- Real estate lending growth by banks: around 30 percent over the past year.
- Fiscal balances and projections:
  - Fiscal surplus: 12 percent of GDP (2012) → 5.8 percent of GDP (2013).
  - Fiscal surplus expected = 2.5 percent of GDP in 2014.
  - Overall fiscal deficit almost 7½ percent of GDP by 2019 (projection).
  - Non-oil primary fiscal deficit = 59.5 percent (2013); projected 50 percent by 2019.
- External sector projections:
  - Current account surplus: around 18 percent of GDP (2013) → 7 percent of GDP by 2019 (projection).
  - SAMA gross foreign assets projected to decline to 25 months of import coverage by end of projection period.
- Table 1 highlights (selected series, exact values):
  - Crude oil production (million barrels per day): 2013 = 9.6; 2014 = 9.7; 2015 = 9.7; 2019 = 10.1.
  - Average oil export price (US$ per barrel): 2013 = 105.8; 2014 = 105.0; 2019 = 91.8.
  - Nominal GDP (SAR billions): 2013 = 2,807; 2014 = 2,923; 2019 = 3,573.
  - Nominal GDP (US$ billions): 2013 = 748; 2014 = 779; 2019 = 953.
  - Real GDP growth (percent): 2013 = 4.0; 2014 = 4.6; 2019 = 4.4.
  - Current account (percent of GDP): 2013 = 17.9; 2014 = 15.4; 2019 = 7.0.
  - SAMA's total net foreign assets (US$ billions): 2013 = 716.7; 2014 = 768.5; 2019 = 704.7.
  - Government deposits at SAMA (Billions SAR): 2013 = 1,641.5; 2014 = 1,691.1; 2019 = 745.0.
- Debt sustainability (baseline highlights, percent of GDP unless noted):
  - Nominal gross public debt: 2012 = 29.2; 2013 = 3.6; 2014 = 2.7; 2019 = 2.1.
  - Public gross financing needs: 2013 = -10.1; 2014 = -4.9; 2019 = 7.4 (table includes series with repeated end entries).
  - Real GDP growth (percent): 2013 = 5.8; 2014 = 4.0; 2019 = 4.4.
  - Effective interest rate (percent): 2013 = 4.5; 2014 = 4.7; 2019 = 5.5.

### Executive Board and policy priorities
- Directors welcomed robust performance and strong fundamentals; risks balanced and centered on the global oil market.
- Policy priorities emphasized by Directors:
  - Slow the pace of government spending over time and increase non-oil revenues to preserve fiscal buffers and ensure intergenerational equity.
  - Set the budget within a medium-term fiscal framework anchored on structural oil revenues and integrate five-year development plan priorities.
  - Strengthen public spending efficiency and establish a macro-fiscal unit.
  - Consider well-planned upward adjustment in energy prices with protection for vulnerable groups.
  - Strengthen macroprudential framework and refine liquidity management; continue monitoring equity prices and mortgage lending.
  - Deepen capital markets (develop a benchmark yield curve), promote financial inclusion, finalize D-SIB framework, and align AML/CFT with the CFT law.
  - Advance labor market reforms, housing policy targeting, and measures to support economic diversification.

*Source: IMF staff report chapter titled "Saudi Arabia and G20 Comparators: Selected Economic Indicators, 2009–13 Averages."*

### 1. Saudi Arabia and G20 Comparators: Selected Economic Indicators, 2009–13 Averages _______ 24

### 1. Saudi Arabia and G20 Comparators: Selected Economic Indicators, 2009–13 Averages

### Context
- Saudi Arabia’s economy has grown very strongly in recent years and has been one of the best performing in the G-20.
- Growth drivers: high oil prices and output, strong private sector activity, and government spending.
- Fiscal and external position: large external and fiscal surpluses; government debt declined to 2.7 percent of GDP.
- Credit rating: Fitch recently upgraded Saudi Arabia’s sovereign credit rating to AA.
- Oil sector role: second largest crude oil exporter; only producer with significant spare capacity.
  - Proven oil reserves: 266 billion barrels.
  - Estimated spare production capacity: 2.7 million barrels a day.
- Domestic policy priorities: jobs and housing for a young and rapidly growing population; economic diversification via transportation infrastructure, business environment improvements, SME financing, industrial clusters around oil and mining, and joint ventures in refining, mining, and banking.

### Recent economic developments and indicators
- Real GDP growth:
  - 2013: real GDP growth slowed to 4 percent from 5.8 percent in 2012.
  - Oil output: 1 percent decline in 2013.
  - Non-oil private sector: growth remained strong at 6 percent in 2013.
- Unemployment:
  - Overall unemployment rate broadly unchanged at 5.5 percent at end-2013.
  - Unemployment rate of Saudi nationals fell from 12 percent to 11.5 percent during the year.
  - Female unemployment rate fell from 35.7 percent to 32.1 percent.
  - Male unemployment rate held steady at about 6 percent.
  - Female labor force participation: rose from 12.6 percent at end-2006 to 16.4 percent at end-June 2013.
- Inflation:
  - From a high of 4 percent in April 2013, inflation fell to 2.7 percent in May 2014.
  - Primary driver of decline: lower food price inflation in line with international trends.
- Bank credit:
  - Bank credit to the private sector peaked at 16.4 percent in May 2013, weakened to 11.8 percent in April 2014.
  - Broader private credit (including SCIs) shows a similar trend through end-2013 (latest available data).
  - Real estate lending by banks grew by around 30 percent over the past year (from a low base) following the mortgage law passage in July 2012.
- Fiscal outcomes:
  - Overall fiscal surplus fell to 5.8 percent of GDP in 2013 from 12 percent of GDP in 2012.
  - Non-oil primary fiscal deficit (as a share of non-oil GDP) remained unchanged at 59.5 percent in 2013.
  - Expenditure increased by 8.5 percent in 2013, with a strong pickup in Q4 due to capital spending on Mecca and Medina expansion projects.
  - Breakeven oil price rose to $89 a barrel in 2013 from $78 a barrel in 2012.
- External sector:
  - Current account surplus declined in 2013 but remained around 18 percent of GDP.
  - Remittance outflows increased by 19 percent in 2013 due to large numbers of expatriate workers returning home.
- Financial markets:
  - Equity prices rose by around 30 percent since mid-2013.
  - Price-earnings ratio rose from around 15.5 in mid-2013 to 19 at present (as of the report).
  - Markets indicate increased capital flows into a relatively shallow equity market.

### Status of 2013 Article IV staff recommendations (key items and current status)
- Macroeconomic vigilance for overheating:
  - Current status: Inflation has slowed; watch rising equity prices, high liquidity, fiscal stimulus from government investment, and growing domestic absorption.
- Fiscal consolidation to strengthen buffers and increase savings:
  - Current status: Fiscal consolidation has not happened; non-oil primary fiscal deficit (percent of non-oil GDP) unchanged from 2012; expected to increase in 2014 with strong expenditure growth.
- Strengthen fiscal management and quality of government spending:
  - Current status: Progress ongoing. Authorities establishing a macro-fiscal unit; developing multi-year projections and fiscal scenarios; introducing qualitative KPIs for line ministries in the forthcoming Tenth National Development Plan.
- Upward adjustment in energy prices to contain domestic energy demand growth:
  - Current status: No adjustment currently envisaged; focus on improving efficiency standards and development of public transportation networks seen as prerequisite.
- Introduce a formal, transparent macro-prudential framework:
  - Current status: Authorities reviewing international best practices; Early Warning Systems (EWS) strengthened; plans to publish a Financial Stability Report for the first time.
- Policies to increase competitiveness of Saudi workers in the private sector:
  - Current status: Labor market strategy under development to increase employment of Saudi nationals in private sector; education system being strengthened; public sector remains dominant source of new jobs for nationals despite increased private sector hiring.
- Improve economic statistics:
  - Current status: FSI data now reported to the Fund and published quarterly; improved coverage of other investment flows reduced errors and omissions in the balance of payments; work well-advanced for publication of fiscal data in GFSM2001 format; a house price index is being developed by SAMA.

### Projections and medium-term outlook
- Near-term growth:
  - Growth projected to pick up to 4½ percent in 2014 and 2015.
  - Oil production expected to be little changed from 2013.
  - Non-oil growth projected at 5½ percent; private sector growth unchanged at 6 percent.
  - Inflation expected to remain subdued; potential upward pressure on construction material prices from strong government spending.
- Medium-term growth:
  - Government spending on transportation infrastructure, housing projects, and Mecca and Medina expansion expected to support non-oil private sector growth of 5¾ percent, broadly in line with staff estimates of potential.
  - Short-term interest rates will rise as the Fed raises its policy rate (given the pegged exchange rate), but high banking liquidity likely to slow pass-through to deposit and lending rates.
  - Inflation expected to edge up to 3.6 percent by 2017 as food price inflation stabilizes, government spending puts pressure on prices, and rents ease with new housing supply.
- Fiscal outlook:
  - Fiscal surplus expected to decline to 2.5 percent of GDP in 2014.
  - Budget projected to move into deficit in 2015.
  - Public investment projected to rise as a share of GDP until 2016, then ease slightly but remain high.
  - Wage bill forecast to grow in line with inflation; spending on goods and services in line with non-oil GDP.
  - Overall fiscal deficit expected to deteriorate further to almost 7½ percent of GDP by 2019.
  - Non-oil primary fiscal deficit (as a percent of non-oil GDP) declines to 50 percent by 2019.
- External outlook:
  - Current account surplus projected to narrow from close to 18 percent of GDP in 2013 to 7 percent of GDP in 2019.
  - Non-oil current account is in a large deficit.
  - SAMA’s gross foreign assets projected to decline to 25 months of import coverage by end of the projection period.
  - Remittance outflows expected to continue rising due to construction projects reliant on expatriate workers.

### Risks, channels, and recommended policy responses
- Overall risk characterization: Risks to the growth outlook broadly balanced.
- Main transmission channel: Oil market (prices and export quantities), given Saudi Arabia’s significant spare capacity.
- Upside risks:
  - Higher oil prices or production.
  - Stronger-than-expected government spending.
  - Wealth effects from further increases in equity prices.
- Downside risks:
  - Weaker global oil market.
  - An eventual drop in equity prices if a bubble develops and bursts.
  - Faster-than-expected increase in U.S. oil output or increased output from other countries, putting downward pressure on Saudi production and/or oil prices.
- Specific scenarios and policy responses (Risk Assessment Matrix summary):
  - Surges in global financial market volatility (related to UMP exit):
    - Relative likelihood: High.
    - Expected impact: Medium/Low.
    - Policy response: Fiscal policy can respond given buffers; SAMA can provide liquidity; monitor pass-through to lending rates given peg.
  - Protracted period of slower growth in advanced and emerging economies:
    - Relative likelihood: High.
    - Expected impact: Medium/Low.
    - Policy response: Fiscal policy can respond given buffers; SAMA can provide liquidity.
  - Sustained decline in oil prices triggered by slower global demand and coming-on-stream excess capacity (medium-term):
    - Relative likelihood: Medium.
    - Expected impact: High.
    - Policy response: Use fiscal and external buffers to smooth key expenditures; adjust fiscal spending if buffers deplete; monitor bank balance sheets.
  - Growth slowdown in China (buildup and unwinding of excess capacity; significant slowdown in 2014):
    - Relative likelihood: Medium/Low.
    - Expected impact: Medium.
    - Policy response: Fiscal buffers and SAMA liquidity support.
  - Regional geopolitical risks (financial flows, commodity prices, supply chains):
    - Relative likelihood: Medium (Russia/Ukraine); Low (Middle East).
    - Expected impact: Low.
    - Policy response: Save additional revenues from temporary positive oil shocks.
  - High liquidity driving an equity bubble which then bursts:
    - Relative likelihood: Medium.
    - Expected impact: Low.
    - Policy response: Monitor risks; consider limits on lending for equity investments; if ineffective, consider steps to reduce liquidity including raising reserve requirement ratio.

### Key statistics and exact figures cited in the chapter
- Government debt: 2.7 percent of GDP.
- Proven oil reserves: 266 billion barrels.
- Estimated spare production capacity: 2.7 million barrels a day.
- Real GDP growth: 2013 = 4 percent; 2012 = 5.8 percent.
- Non-oil private sector growth (2013): 6 percent.
- Unemployment: overall 5.5 percent at end-2013; nationals 12 percent → 11.5 percent; female 35.7 percent → 32.1 percent; male ~6 percent.
- Female labor force participation: 12.6 percent at end-2006 → 16.4 percent at end-June 2013.
- Inflation: 4 percent (April 2013) → 2.7 percent (May 2014); projected 3.6 percent by 2017.
- Bank credit growth to private sector: peak 16.4 percent in May 2013 → 11.8 percent in April 2014.
- Real estate lending growth by banks: around 30 percent over the past year (from a low base).
- Fiscal surplus: 12 percent of GDP (2012) → 5.8 percent of GDP (2013).
- Non-oil primary fiscal deficit (share of non-oil GDP): 59.5 percent (2013); projected to decline to 50 percent by 2019.
- Expenditure growth: 8.5 percent in 2013.
- Breakeven oil price: $78 a barrel (2012) → $89 a barrel (2013).
- Current account surplus: around 18 percent of GDP (2013); projected to narrow to 7 percent of GDP by 2019.
- Remittance outflows: increased by 19 percent in 2013.
- Equity market: prices up around 30 percent since mid-2013; P/E ratio rose from around 15.5 in mid-2013 to 19 at present.
- Growth projections: 4½ percent (2014 and 2015); non-oil growth 5½ percent (near term); non-oil private sector growth 5¾ percent (medium term).
- Fiscal projection: fiscal surplus 2.5 percent of GDP in 2014; overall fiscal deficit almost 7½ percent of GDP by 2019.
- SAMA gross foreign assets projection: decline to 25 months of import coverage by end of projection period.

*Source: IMF staff report chapter titled "Saudi Arabia and G20 Comparators: Selected Economic Indicators, 2009–13 Averages."*

### 18.      Inward spillovers from global financial markets are limited. The Saudi Arabian stock

### _cr14292 - 18.      Inward spillovers from global financial markets are limited. The Saudi Arabian stock

### Inward spillovers and financial stability
- Findings:
  - The Saudi Arabian stock market and the domestic interbank and SAMA bill market were unaffected by tapering discussions and their implementation since 2013.
  - January’s emerging market turmoil had almost no impact on Saudi financial markets.
  - Regional developments produced larger spillovers (example: Syrian standoff in late August 2013 when the Saudi stock market temporarily fell).
  - Stress tests from the 2011 FSAP update suggest the direct impact of Fed tapering on the banking system are likely to be small.
  - Given the structure of bank balance sheets, banks will likely benefit from a modest rise in interest rates that does not have a significant impact on non-performing loans (NPLs).
  - NPLs would rise if growth slowed, but the banking system should be able to absorb these losses given strong capital and liquidity buffers.
  - A larger rise in interest rates may affect banks’ balance sheets in the medium term by slowing or reversing growth in non-interest bearing deposits.

- Key statistics and indicators:
  - Provisioning levels increased to over 150 percent of gross non-performing loans at end-2013.
  - SAMA bills’ interest rates are set at 80 percent of the reported interest rates in the inter-bank deposit market.

### Equity market dynamics and risks
- Findings:
  - The equity market has risen strongly over the past year, and may continue to rise given still abundant liquidity in the domestic economy.
  - Rising equity prices would positively impact near-term growth but increase the risk of a later correction.
  - Current equity valuations appear somewhat on the rich side relative to global and regional markets.

- Policy guidance:
  - Monitor equity market developments closely.
  - Consider specific measures to limit lending for equity investments if equity prices keep rising strongly.
  - If specific measures are ineffective, consider steps to reduce liquidity including raising the reserve requirement ratio.

### Macroeconomic buffers and capacity to respond
- Findings:
  - Macroeconomic policies are in a strong position to respond to risks because of substantial buffers in the government and banking sectors.
  - If downside risks emerge, the government could use financial assets to smooth spending and provide temporary support.
  - High bank capital ratios can absorb a rise in NPLs, and SAMA can provide liquidity as needed.

### Outward spillovers: remittances, imports, and official financing
- Findings:
  - Remittance outflows are an important source of income for countries in the region and in South and South-East Asia due to a large expatriate workforce.
  - Strong domestic demand in Saudi Arabia has generated strong import growth.
  - Saudi Arabia is a significant provider of financial assistance to countries in the region.

- Financial Assistance from Saudi Arabia to Arab States, January 2011 to April 2014 (US$ million) — Source: Ministry of Finance.
  - Bahrain: Amount Disbursed 69? (table indication in source text shows formatting issues; preserve exactly as presented)
  - Djibouti: Amount Disbursed 18; Amount Committed 68
  - Egypt: Amount Disbursed 5,944; Amount Committed 6,494
  - Jordan: Amount Disbursed 1,907; Amount Committed 2,976
  - Morocco: Amount Disbursed 488; Amount Committed 1,642
  - Oman: Amount Disbursed -; Amount Committed 2,500
  - Sudan: Amount Disbursed 240; Amount Committed 527
  - West Bank and Gaza: Amount Disbursed 1,041; Amount Committed 1,791
  - Yemen: Amount Disbursed 1,160; Amount Committed 3,824
  - Total: Amount Disbursed 10,867; Amount Committed 22,666

### Fiscal outlook, risks, and scenarios
- Current position and risks:
  - Fiscal position is currently very strong.
  - Government deposits at SAMA have increased to around 60 percent of GDP, sufficient to cover 20 months of spending.
  - Government debt has declined to only 2¾ percent of GDP.
  - The government’s ambitious spending program could significantly erode buffers over the next few years.
  - Capital expenditures projected to increase during 2014–18 to over 16 percent of GDP from 11 percent in 2012.
  - Housing loan disbursements are estimated to reach up to SAR 25 billion a year.
  - Government deposits at SAMA are projected to drop by about 55 percent between 2013 and 2019 (and in 2019 would be sufficient to cover 6½ months of spending).

- Low oil price scenario:
  - If oil prices were to drop by $25 below the baseline in 2015 and remain lower until 2019, the fiscal deficit would be much larger and government deposits at SAMA would be exhausted by 2018 if spending did not adjust.

- Staff recommended adjustment scenario:
  - An adjustment that reduces the non-oil fiscal deficit by about 3 percent of non-oil GDP a year during 2014–19 relative to the 2013 budget outcome would ensure government deposits remain sufficient to manage a large drop in oil prices.
  - Assuming a medium-term fiscal multiplier of 0.5, this fiscal consolidation could lead to slower non-oil GDP growth of up to 1 percent a year by the end of the projection period.
  - The structural balance is calculated using a 5-year backward oil price rule and a 3-year backward average of oil exports.
  - Targeting a positive structural balance over time would allow accumulation of savings for future generations.

### Fiscal consolidation options and fiscal framework reforms
- Suggested expenditure measures:
  - Undertake a civil service review to identify positions that are not essential and could be eliminated as they become vacant to reduce the government wage bill.
  - Prioritize capital spending projects to identify those that could be delayed or cancelled; review project processes for cost savings.
  - Note: Government wage bill was high by international standards; government expenditures regularly exceeded budgeted expenditures by a substantial margin (19 percent in 2013).

- Suggested revenue measures:
  - Increase non-oil revenues, including consideration of a tax on higher-end property or vacant land, increasing fees/charges for government services, and an increase in energy prices (preferably coordinated at the GCC level).
  - Forgone revenues from low domestic energy prices are estimated to be around 10 percent of GDP (2011 estimates).

- Fiscal framework reforms:
  - Ensure the budget provides a full account of planned expenditures during the year, including planned spending from the budget surplus fund and full costing of all spending commitments.
  - Develop a medium-term budgetary framework based on expenditure plans consistent with projections of structural oil revenues, development plans, a target for the structural budget balance, and robust macroeconomic forecasts.
  - Update the 5-year development plan regularly and link to annual budgets on a rolling basis.
  - Introduce the Government Financial Management Information System (GFMIS) to support the framework and strengthen controls on line ministries.
  - Establish a well-staffed macro-fiscal unit and publish fiscal data in GFSM2001 format as soon as possible (preparations and staff training well-advanced; publication expected in early 2015).

- Authorities’ stance:
  - Authorities broadly agreed with staff’s fiscal projections but saw limited scope for fiscal consolidation at present due to national priorities (Mecca and Medina expansion projects, housing and transportation projects).
  - Authorities saw little scope to raise additional revenues at present but considered increases in energy prices over the medium term when alternate modes of transportation become available.

- Public investment efficiency:
  - Efficiency appears broadly in line with the global average, but there is scope for improvement.
  - Improvements targeted through introduction of qualitative Key Performance Indicators (KPIs) for line ministries as part of the forthcoming Tenth National Development Plan.

### Monetary, macroprudential, and liquidity management policies
- Current stance:
  - Monetary and macroprudential policy settings viewed as appropriate at present; no changes over the past year as inflationary pressures eased and financial conditions remained stable.
  - Risks from higher U.S. rates appear limited.

- Macroprudential recommendations:
  - Use the macroprudential toolkit more clearly linked to overall macroeconomic and financial developments.
  - Consider using loan-to-deposit ratio, loan-to-income ratio, debt-service-to-income ratio, and limits on concentrated exposures in a countercyclical way by linking them explicitly to macroeconomic and financial developments.
  - Develop a formal, clear, and transparent macroprudential framework to give SAMA a mandate for ensuring financial stability and codify coordination across regulators.
  - Encourage publication of SAMA’s Early Warning Systems (EWS) indicators, including the house price index currently under development.
  - SAMA plans to publish a financial stability report for the first time.

- Liquidity management recommendations:
  - Introduce a formal liquidity forecasting framework and review liquidity management tools to better manage banking system liquidity.
  - Rationale: SAMA issues SAMA bills regularly to absorb excess liquidity; there is a ceiling on weekly issuance revised infrequently (last revision February 2010), and both the quantity and price of SAMA bills are set centrally, contributing to banking system liquidity volatility.
  - A forecasting framework would allow SAMA to vary the amount and maturity of SAMA bills offered and strengthen transmission of monetary policy signals.
  - SAMA’s view: liquidity management operations and toolkit are effective and based on market fundamentals; size of SAMA bill issuance has increased over time and weekly issuances are not systematically oversubscribed; issuance is calibrated to provide space for banks to expand private sector credit while ensuring credit growth is not too rapid.

*Source: IMF staff report content provided in the source document.*

### Box 1. The Pension System in Saudi Arabia

### Box 1. The Pension System in Saudi Arabia

### Overview
- Saudi Arabia has a mandatory public pension system with a gross replacement rate of 100 percent.
- Pension income is not subject to taxation.
- Two bodies administer pensions:
  - Public Pension Agency (PPA): covers government civilian and military personnel.
  - General Organization for Social Insurance (GOSI): broadly covers the private sector.
- Both PPA and GOSI have an “exchange of benefits” system that preserves service years and contributions for employees who move between public and private sectors to maximize pension benefits upon retirement.

### Types of benefits
- Retirement, disability, and survivor benefits, in addition to a lump-sum benefit.

### Total benefits and payments
- Total payments rose to SAR 62 billion in 2013, three times higher than in 2004, with most benefits extended through the PPA.
- Total benefits paid (annual flows):
  - 2004: 20.6
  - 2008: 33.9
  - 2012: 56.8
  - 2013: 62.1
- PPA benefits (annual flows):
  - 2004: 17.3
  - 2008: 27.9
  - 2012: 44.6
  - 2013: 45.3
  - A) Recurrent pensions: 27.6 (2004), 44.5 (2008), - (2012)
  - B) Lump sum compensation: -0.3 (2004), 0.1 (2008), - (2012)
- GOSI benefits (annual flows):
  - 2004: 3.3
  - 2008: 6.0
  - 2012: 12.2
  - 2013: 16.8
  - A) Recurrent pensions: 3.3 (2004), 5.9 (2008), 12.1 (2012), - (2013)
  - B) Lump sum compensation: 0.02 (2004), 0.06 (2008), 0.11 (2012), - (2013)

### Pension fund assets and composition
- Pension assets reached SAR 939 billion (2013).
- Pension Fund Assets (SAR billion):
  - Total: 515.6 (2004), 634.8 (2008), 838.1 (2012), 939.1 (2013)
  - PPA: 311.4 (2004), 353.2 (2008), 474.0 (2012), 520.0 (2013)
    - Foreign assets, net (share of total): 26 (2004), 26 (2008), 50 (2012), 52 (2013)
    - Domestic assets (share of total): 74 (2004), 74 (2008), 50 (2012), 48 (2013)
  - GOSI: 204.2 (2004), 281.6 (2008), 364.1 (2012), 419.1 (2013)
    - Foreign assets, net (share of total): 31 (2004), 33 (2008), 36 (2012), 36 (2013)
    - Domestic assets (share of total): 69 (2004), 67 (2008), 64 (2012), 64 (2013)
- Foreign assets (net) grew three-fold between 2004 and 2013.
- SAR 449 billion was held at SAMA as of end-2012 (comprising 16.3 percent of GDP).
- Both funds invest domestically in financial assets and in real estate.
- Rate of return on investment amounted to 9.8 percent for the PPA in 2012.

### Pension funds domestic investments
- Pension Funds Domestic Investments (SAR billion):
  - Total: 48.7 (2004), 81.6 (2008), 123.9 (2012), - (2013)
  - PPA: 24.6 (2004), 39.1 (2008), 67.9 (2012), - (2013)
    - Financial investments (share of total): 100 (2004), 71 (2008), 61 (2012), - (2013)
    - Real estate (share of total): - (2004), 29 (2008), 39 (2012), - (2013)
  - GOSI: 24.1 (2004), 42.5 (2008), 56.0 (2012), - (2013)
    - Financial investments (share of total): 91 (2004), 95 (2008), 92 (2012), - (2013)
    - Real estate (total project costs, share of total): 9 (2004), 5 (2008), 8 (2012), - (2013)

### Net income position and income composition
- Net Income Position (SAR billion):
  - Total: 24.8 (2004), 22.8 (2008), 58.7 (2012), 64.7 (2013)
  - PPA: 16.8 (2004), 11.6 (2008), 44.5 (2012), 45.9 (2013)
    - Income, o/w: 34.1 (2004), 39.7 (2008), 89.3 (2012), 91.5 (2013)
    - Pension contributions (share of total income): 26 (2004), 28 (2008), 23 (2012), 22 (2013)
    - Investment income (share of total income): 43 (2004), 38 (2008), 46 (2012), 47 (2013)
    - Expenses: 17.3 (2004), 28.1 (2008), 44.8 (2012), 45.6 (2013)
  - GOSI: 8.0 (2004), 11.2 (2008), 14.2 (2012), 18.8 (2013)
    - Income, o/w: 12.9 (2004), 19.1 (2008), 28.1 (2012), 37.2 (2013)
    - Pension contributions (share of total income): 47 (2004), 48 (2008), 54 (2012), 50 (2013)
    - Expenses: 4.8 (2004), 7.9 (2008), 13.8 (2012), 18.4 (2013)

### Demographics, coverage, and sustainability
- Current demographics are keeping the pension system financially sound: the young population, strong growth, and rise in number of subscribers more than compensate for the rise in pension beneficiaries.
- Subscribers to GOSI alone almost doubled between 2004 and 2013 (to some 18 million), most of whom are from the private sector.
- An OECD study estimates public expenditure on pensions will grow from 2.2 percent of GDP (2010) to 7.1 percent of GDP by 2050.
- Future shifts in demographics need careful monitoring to ensure long-run sustainability and to minimize risks associated with long-term pension liabilities.

### Reforms and policy considerations
- Reforms to the pension systems are under consideration.
- The Shura Council is considering a proposal to raise the retirement age for government employees.

*Sources: Public Pension Agency (PPA); and the General Organization for Social Insurance (GOSI).*

### 51.      The economy is growing strongly, and risks are broadly balanced. In 2014, oil

### The economy is growing strongly, and risks are broadly balanced.

### Growth, inflation, and risks
- In 2014, oil production is expected to be little changed from 2013.
- Government spending on large scale infrastructure and housing projects is expected to underpin non-oil private sector growth.
- Inflation has eased since mid-2013, driven largely by food prices.
- Unemployment has fallen.
- Global financial market volatility has had a limited impact on Saudi Arabia.
- Risks to the growth outlook are balanced and mainly center on the oil market.

### Role in the oil market and regional support
- Saudi Arabia plays a systemic and stabilizing role in the global oil market.
- In line with this role, Saudi Arabia increased oil production in 2013 to help 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.
- Large remittance flows from expatriates working in the country provide important income flows to countries in the region and in Asia.

### Fiscal policy, buffers, and intergenerational equity
- Fiscal adjustment is needed to preserve buffers and increase saving for intergenerational equity purposes.
- The fiscal consolidation envisaged at the time of the 2013 Article IV has not materialized as spending growth has remained strong.
- The government’s ambitious spending program would significantly erode the large fiscal buffers built over the past decade and increase vulnerability to a drop in oil prices.
- Slowing the pace of government spending together with measures to increase non-oil revenues would help strike a better balance between achieving development goals, maintaining the ability to manage risks, and saving for future generations.
- If the budget were put on a consolidation path and fiscal buffers were maintained, these buffers could be used to smooth spending in the event of a temporary decline in oil prices.
- Ensuring the efficiency of public investment spending is important.

### Reforms to the fiscal policy framework
- Reforms should start with the annual budget to ensure it provides a realistic representation of the government’s planned expenditures during the year.
- Budget improvements will enhance the budget as a signaling device of the government’s fiscal policy intentions and help ensure the efficiency of public spending.
- Budget estimates should include planned spending from the budget surplus fund and the full costing of all expected spending commitments.
- The annual budget should be set within a medium-term framework anchored around an estimate of structural revenues that delinks spending decisions from oil revenue volatility and fully integrates the expenditure priorities in the five-year national development plan within the budget.
- Establishing a macro-fiscal unit and publishing data in GFSM2001 format will support these changes.

### Monetary policy and macroprudential frameworks
- Monetary and macroprudential policy settings are appropriate at present, but the policy frameworks could be strengthened.
- The introduction of a liquidity forecasting framework could help enable better liquidity management and strengthen the monetary policy transmission mechanism.
- Developing a formal macroprudential framework would give SAMA a clear mandate for ensuring financial stability and would more explicitly codify coordination across regulators.
- Consideration should be given to linking the use of macroprudential tools with macroeconomic and financial developments in a countercyclical way.
- These tools would help SAMA manage the potential effects of asset price cycles and other developments on financial stability.
- If equity prices continue to rise strongly, consideration should be given to tightening prudential norms for lending for equity investment.

### Financial sector regulation, development, and inclusion
- Reforms to strengthen financial sector regulation and supervision should go hand-in-hand with measures to promote financial development and inclusion.
- Saudi Arabia was among the first countries to implement Basle III capital, liquidity, and leverage standards for the banking system, which remains well-capitalized, liquid, and profitable.
- Measures are underway to improve access to mortgage finance, streamline the process for debt issuance, and increase financial inclusion.
- The D-SIB framework should be finalized.
- The AML/CFT regulatory and reporting framework should be brought into line with the new CFT law and implemented.
- Developing a benchmark yield curve could help develop a local debt market, thereby increasing financing and investment options in the economy.

### Demographic pressures, labor, housing, and energy policy
- Initiatives to address demographic pressures need to be implemented in coordination with other policies.
- Labor market programs are aimed at increasing the skills and competitiveness of Saudi nationals and have contributed to increasing their employment in the private sector.
- These programs need to be complemented with a reduced reliance on public sector jobs.
- The government’s housing programs need to be carefully targeted to the less well-off and work in tandem with the private sector to ensure that policies to develop private mortgage finance are given space to work.
- Curbing the growth in domestic energy consumption will require a well communicated upward adjustment of energy prices, with compensation provided to vulnerable sections of society.
- Efforts to improve energy efficiency and develop public transportation networks will be more effective if implemented in tandem with higher energy prices.

### Economic diversification challenges and measures
- Economic diversification in a country such as Saudi Arabia which has vast oil resources is a significant challenge.
- The government is making considerable efforts to lay the ground for further diversification by upgrading infrastructure, strengthening education and skills, boosting access to finance for SMEs, and improving the business environment.
- However, the incentives for diversification are not yet fully developed, and further efforts are needed to encourage firms to export and Saudi workers to participate in the private sector.

### Statistical improvements
- Considerable progress has been made in improving the quality and availability of key economic statistics.
- Further progress is needed particularly in the areas of government finance, national accounts, labor, and real estate market statistics.
- Subscription to SDDS should be a short-term goal.
- Close collaboration with GCCStat could help improve statistics in Saudi Arabia and the region.

*Source: IMF staff report excerpt.*

### 60.      It is recommended that the next Article IV consultation take place on the standard 12-

### _cr14292 - 60.      It is recommended that the next Article IV consultation take place on the standard 12-

### Article IV consultation recommendation
- It is recommended that the next Article IV consultation take place on the standard 12-month cycle.

### Macroeconomic overview (selected indicators and averages)
- Source: IMF World Economic Outlook (Figures summarize 2009–13 averages for Real GDP Growth, Inflation, Unemployment Rate, Fiscal Balance (Percent of GDP), Gross Government Debt (Percent of GDP), Current Account Balance (US$ billion)).
- Real GDP Growth (2009–13 averages): visualized across comparators (no scalar summary in text).
- Inflation (2009–13 averages): visualized across comparators (no scalar summary in text).
- Current Account Balance displayed in US$ billion for Saudi Arabia and G20 comparators (figure; no single numeric summary in text).

### Growth and employment (Figure 2)
- Growth and employment series presented graphically for Saudi Arabia (no single numeric summary in text).

### Inflation and monetary developments (Figure 3)
- Inflation and monetary indicators presented graphically (CPI deflator note: Real expenditures are deflated by the CPI).

### Fiscal and external sector developments (Figure 4 and notes)
- Sustainable level of fiscal spending from oil wealth is defined as an annuity constant in real per capita terms; shaded area represents the sustainable level conditional on oil prices remaining within $25 per barrel of the baseline.
- Structural revenues estimation method:
  - Long-term oil price = average oil price from past five years.
  - Long-term oil output = three year moving average including the current year.
  - Structural balance = structural revenues less total expenditures.
- Fiscal and Current Account Balances, 2009–14 shown (percent of GDP) for Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, U.A.E. (graphic).
- Break-even Oil Prices, 2012–13 (US$ dollars per barrel): Average Brent price in 2013: $109 (figure).
- Real Government Spending, 2009–14: Non-oil deficit (% non-oil GDP) and Real government spending growth (RHS) presented (figure).
- Structural and Overall Fiscal Balance, 2007–19: Overall balance (% GDP) and Structural balance (% non-oil GDP) shown with an adjusted scenario (figure).
- Projected and Sustainable Non-oil Primary Deficit (Percent of non-oil GDP) shown with:
  - Sustainable level - baseline
  - Projected level
  - Average (2003-2013)
  - Adjustment scenario

### Impact of global and regional shocks on financial markets (Figure 5)
- Period: March 2013–June 2014.
- EPFR Cumulative Funds Flows (Jan 2011 = 0, in US$ billions) plotted for SAU, UAE, with event annotations: "Russia's actions in Crimea", "Iran's agreement with the U.S.", "Threat of U.S. military intervention in Syria", "Chairman Bernanke's speech", "Fed surprises by holding off tapering", "Fed announces tapering from January", "EM turmoil".
- Stock market indices (Index, Jan 1, 2012 = 100) shown for SAU, UAE, Fragile 5, S&P 500; banks indices also plotted.

### Impact of oil prices on the fiscal position, 2014–19 (Figure 6)
- Scenario lines plotted for:
  - $25 per barrel above baseline
  - Baseline scenario
  - $25 per barrel below baseline
- Series shown (Percent of GDP unless otherwise specified):
  - Oil Prices (US$ per barrel), Oil Revenues, Total Expenditure and Net Lending, Non-oil Primary Balance, Overall Balance, Central Government Deposits at SAMA.
- Note: Assumes no fiscal policy action. Differences in expenditure and non-oil balance ratios are driven by the impact of lower oil prices on nominal GDP.

### Business environment and diversification (Figure 7 and notes)
- Sources: Global Competitiveness Report 2013-14, United Nations Statistics Division, Doing Business 2014.
- Trade indicators and Doing Business rankings (2013–14) visualized across GCC comparators.
- Most problematic factors for Doing Business (Percent of responses): includes "Poor work ethic in national labor force", "Access to financing", "Inefficient government bureaucracy", "Inadequately educated workforce", "Restrictive labor regulations".
- Nominal GDP 2011 by Income Approach (Percent of GDP) shown for Saudi (and non-oil) and comparators.
- Public capital stocks and infrastructure quality (2005–11) visualized: "Infrastructure quality, 1-7 (best)" and "Real public capital stock per capita (PPP)".

### Key statistics and projections (Table 1: Selected Economic Indicators, 2011–19)
- Crude oil production (million of barrels per day) 2011–2019:
  - 2011: 9.3
  - 2012: 9.8
  - 2013: 9.6
  - 2014: 9.7
  - 2015: 9.7
  - 2016: 9.8
  - 2017: 9.9
  - 2018: 10.0
  - 2019: 10.1
- Average oil export price (U.S. dollars per barrel) 2011–2019:
  - 2011: 107.1
  - 2012: 109.5
  - 2013: 105.8
  - 2014: 105.0
  - 2015: 101.6
  - 2016: 97.7
  - 2017: 95.2
  - 2018: 93.4
  - 2019: 91.8
- Nominal GDP (SAR billions) 2011–2019:
  - 2011: 2,511
  - 2012: 2,752
  - 2013: 2,807
  - 2014: 2,923
  - 2015: 3,011
  - 2016: 3,114
  - 2017: 3,250
  - 2018: 3,406
  - 2019: 3,573
- Nominal GDP (US$ billions) 2011–2019:
  - 2011: 670
  - 2012: 734
  - 2013: 748
  - 2014: 779
  - 2015: 803
  - 2016: 830
  - 2017: 867
  - 2018: 908
  - 2019: 953
- Nominal non-oil GDP (SAR billions) 2011–2019:
  - 2011: 1,234
  - 2012: 1,376
  - 2013: 1,486
  - 2014: 1,605
  - 2015: 1,735
  - 2016: 1,877
  - 2017: 2,033
  - 2018: 2,201
  - 2019: 2,379
- Nominal GDP per capita (US$) 2011–2019:
  - 2011: 23,594
  - 2012: 25,139
  - 2013: 24,953
  - 2014: 25,452
  - 2015: 25,706
  - 2016: 26,064
  - 2017: 26,668
  - 2018: 27,400
  - 2019: 28,183
- Real GDP growth (percent) 2011–2019:
  - 2011: 8.6
  - 2012: 5.8
  - 2013: 4.0
  - 2014: 4.6
  - 2015: 4.5
  - 2016: 4.4
  - 2017: 4.4
  - 2018: 4.4
  - 2019: 4.4
- Real GDP: oil and non-oil breakdown:
  - Oil: 2011: 11.0; 2012: 5.7; 2013: -1.0; 2014: 0.6; 2015: 0.0; 2016: 0.9; 2017: 0.9; 2018: 0.9; 2019: 0.9
  - Non-oil: 2011: 7.9; 2012: 5.8; 2013: 5.3; 2014: 5.6; 2015: 5.5; 2016: 5.2; 2017: 5.2; 2018: 5.2; 2019: 5.1
- Consumer price index (avg) 2011–2019:
  - 2011: 3.7
  - 2012: 2.9
  - 2013: 3.5
  - 2014: 2.9
  - 2015: 3.2
  - 2016: 3.4
  - 2017: 3.6
  - 2018: 3.4
  - 2019: 3.3
- Current account balance (percent of GDP) 2011–2019:
  - 2011: 23.7
  - 2012: 22.4
  - 2013: 17.9
  - 2014: 15.4
  - 2015: 12.5
  - 2016: 10.4
  - 2017: 9.0
  - 2018: 7.5
  - 2019: 7.0
- SAMA's total net foreign assets (US$ billions) 2011–2019:
  - 2011: 535.2
  - 2012: 647.6
  - 2013: 716.7
  - 2014: 768.5
  - 2015: 793.9
  - 2016: 798.3
  - 2017: 784.9
  - 2018: 751.6
  - 2019: 704.7
- In months of imports of goods and services (Next 12 months) 2011–2019:
  - 2011: 29.8
  - 2012: 33.9
  - 2013: 35.2
  - 2014: 35.4
  - 2015: 34.0
  - 2016: 32.0
  - 2017: 29.5
  - 2018: 26.9
  - 2019: 24.9
- Population (millions) 2011–2019:
  - 2011: 28.4
  - 2012: 29.2
  - 2013: 30.0
  - 2014: 30.6
  - 2015: 31.2
  - 2016: 31.9
  - 2017: 32.5
  - 2018: 33.1
  - 2019: 33.8

### Budgetary central government operations (Table 2 highlights, Billions of SAR and percent of GDP)
- Revenue (Billions SAR) 2011–2019:
  - 2011: 1,117.8
  - 2012: 1,247.4
  - 2013: 829.0
  - 2013 (Prel.): 1,156.4
  - 2014 (Budget): 855.0
  - 2014 (Prel.): 1,175.0
  - 2015 (Proj.): 1,142.1
  - 2016 (Proj.): 1,114.2
  - 2017 (Proj.): 1,105.1
  - 2018 (Proj.): 1,101.0
  - 2019 (Proj.): 1,098.8
- Oil revenue (Billions SAR) 2011–2019:
  - 2011: 1,034.4
  - 2012: 1,144.8
  - 2013: 727.0
  - 2013 (Prel.): 1,035.0
  - 2014 (Budget): 735.0
  - 2014 (Prel.): 1,045.1
  - 2015 (Proj.): 1,001.9
  - 2016 (Proj.): 964.5
  - 2017 (Proj.): 941.3
  - 2018 (Proj.): 924.2
  - 2019 (Proj.): 908.8
- Non-oil revenue and tax components (Billions SAR) 2011–2019:
  - Non-oil revenue 2011: 83.4; 2012: 102.6; 2013: 102.0; 2013 (Prel.): 121.3; 2014 (Budget): 120.0; 2014 (Prel.): 129.9; 2015–2019 (Proj.): 140.2, 149.7, 163.8, 176.7, 190.0
  - Taxes (Billions SAR) 2011: 26.8; 2012: 34.0; 2013: 29.3; 2013 (Prel.): 33.5; 2014 (Budget): 33.5; 2014 (Prel.): 36.1; 2015–2019 (Proj.): 38.9, 40.1, 45.1, 48.2, 51.1
- Expenditure (Billions SAR) 2011–2019:
  - 2011: 837.5
  - 2012: 917.1
  - 2013: 820.0
  - 2013 (Prel.): 994.7
  - 2014 (Budget): 855.0
  - 2014 (Prel.): 1,100.5
  - 2015–2019 (Proj.): 1,185.7; 1,223.2; 1,272.8; 1,348.0; 1,362.5
- Net lending (+)/borrowing (-) (Billions SAR) 2011–2019:
  - 2011: 280.3
  - 2012: 330.3
  - 2013: 161.6
  - 2013 (Prel.): 0.0
  - 2014 (Budget): 74.5
  - 2014 (Prel.): -43.6
  - 2015–2019 (Proj.): -109.0; -167.7; -247.1; -263.7
- Government Deposits at SAMA (Billions SAR) 2011–2019 (Memorandum):
  - 2011: 1,187.0
  - 2012: 1,515.7
  - 2013: 1,641.5
  - 2014: 1,691.1
  - 2015: 1,622.5
  - 2016: 1,489.5
  - 2017: 1,298.7
  - 2018: 1,029.7
  - 2019: 745.0
- Revenue and expenditure as percent of GDP 2011–2019:
  - Revenue: 2011: 44.5; 2012: 45.3; 2013: 41.2; 2014: 40.2; 2015: 37.9; 2016: 35.8; 2017: 34.0; 2018: 32.3; 2019: 30.7
  - Expenditure: 2011: 33.4; 2012: 33.3; 2013: 29.2; 2014: 35.4; 2015: 29.3; 2016: 37.6; 2017: 39.3; 2018: 39.2; 2019: 38.1
- Net lending (+)/borrowing (-) as percent of GDP 2011–2019:
  - 2011: 11.2
  - 2012: 12.0
  - 2013: 5.8
  - 2014: 0.0
  - 2015: 2.5
  - 2016: -1.4
  - 2017: -3.5
  - 2018: -5.2
  - 2019: -7.3
  - 2019 (alternate line): -7.4 (table shows both -7.3 and -7.4 in different rows)

### Fiscal operations of the general government (Table 3, percent of GDP, 2007–13)
- I. Budgetary central government (percent of GDP) 2007–2013:
  - Revenue: 41.2 (2007), 56.5 (2008), 31.7 (2009), 37.5 (2010), 44.5 (2011), 45.3 (2012), 41.2 (2013)
  - Expenditure: 29.5 (2007), 26.7 (2008), 37.1 (2009), 34.0 (2010), 33.4 (2011), 33.3 (2012), 35.4 (2013)
  - Overall balance: 11.8 (2007), 31.6 (2008), -5.4 (2009), 3.6 (2010), 11.2 (2011), 12.0 (2012), 5.8 (2013)
  - Primary balance: 13.1 (2007), 30.7 (2008), -4.5 (2009), 4.1 (2010), 11.5 (2011), 12.2 (2012), 5.9 (2013)
- II. Autonomous Government Institutions (PPA, GOSI) and III. Public Investment Fund: revenue, expenditure and overall balance series shown (percent of GDP).
- IV. General government (=I+II+III) overall balance and primary balance series:
  - Overall balance: 15.0 (2007), 31.6 (2008), -4.1 (2009), 5.2 (2010), 12.0 (2011), 14.7 (2012), 8.7 (2013)
  - Primary balance: 16.4 (2007), 32.5 (2008), -3.2 (2009), 5.7 (2010), 12.3 (2011), 15.0 (2012), 8.9 (2013)
- Memorandum: Net assets(+)/debt(-) and Government Deposits at SAMA (percent of GDP) series provided (2007–13).

### Balance of payments (Table 4: US$ billion, 2011–19 highlights)
- Current account (US$ billion) 2011–2019:
  - 2011: 158.6
  - 2012: 164.8
  - 2013: 134.3
  - 2014: 120.2
  - 2015: 100.1
  - 2016: 86.5
  - 2017: 77.7
  - 2018: 68.4
  - 2019: 66.7
- Current account (percent of GDP) 2011–2019:
  - 2011: 23.7
  - 2012: 22.4
  - 2013: 17.9
  - 2014: 15.4
  - 2015: 12.5
  - 2016: 10.4
  - 2017: 9.0
  - 2018: 7.5
  - 2019: 7.0
- Trade balance (US$ billion) 2011–2019:
  - 2011: 244.8
  - 2012: 246.6
  - 2013: 224.3
  - 2014: 214.6
  - 2015: 193.9
  - 2016: 174.4
  - 2017: 160.0
  - 2018: 149.1
  - 2019: 140.8
- Exports and oil exports series 2011–2019:
  - Exports: 2011: 364.7; 2012: 388.4; 2013: 377.0; 2014: 377.8; 2015: 369.1; 2016: 362.8; 2017: 361.7; 2018: 362.8; 2019: 364.9
  - Oil exports: 2011: 317.6; 2012: 337.5; 2013: 323.1; 2014: 320.3; 2015: 307.1; 2016: 295.6; 2017: 288.5; 2018: 283.3; 2019: 278.6
- Imports (f.o.b.) 2011–2019:
  - 2011: -120.0
  - 2012: -141.8
  - 2013: -152.7
  - 2014: -163.3
  - 2015: -175.2
  - 2016: -188.4
  - 2017: -201.6
  - 2018: -213.8
  - 2019: -224.1
- Financial account and components (US$ billion):
  - Financial account totals and Direct Investment, Portfolio investments, Other investments series 2011–2019 shown in table.
- Net errors and omissions 2011–2013:
  - 2011: -48.2
  - 2012: -42.3
  - 2013: -3.8
  - 2014–2019: 0.0 (table entries)
- Overall balance 2011–2019:
  - 2011: 96.0
  - 2012: 115.8
  - 2013: 69.2
  - 2014: 51.8
  - 2015: 25.4
  - 2016: 4.5
  - 2017: -13.4
  - 2018: -33.3
  - 2019: -46.9
- Change in SAMA's NFA (- increase) 2011–2019:
  - 2011: -93.1
  - 2012: -112.5
  - 2013: -69.7
  - 2014: -51.8
  - 2015: -25.4
  - 2016: -4.5
  - 2017: 13.4
  - 2018: 33.3
  - 2019: 46.9
- Memorandum items:
  - SAMA's gross foreign assets (US$ billions): 2011: 536.2; 2012: 648.7; 2013: 718.4; 2014: 770.2; 2015: 795.6; 2016: 800.0; 2017: 786.6; 2018: 753.3; 2019: 706.4
  - WEO oil price (US$/barrel) 2011–2019: 104.0; 105.0; 104.1; 104.1; 99.6; 95.1; 92.3; 90.6; 89.4
  - Average Saudi oil price (US$/barrel) 2011–2019: 107.1; 109.5; 105.8; 105.0; 101.6; 97.7; 95.2; 93.4; 91.8

### Monetary survey highlights (Table 5, SAR billions, 2010–15)
- Foreign assets (net) (Billions SAR) 2010–2015:
  - 2010: 1,749.9
  - 2011: 2,140.4
  - 2012: 2,562.0
  - 2013: 2,824.1
  - 2014: 3,019.6
  - 2015 (Proj.): 3,116.1
- Money and quasi-money (M3) (Billions SAR) 2010–2015:
  - 2010: 1,080.4
  - 2011: 1,223.6
  - 2012: 1,393.8
  - 2013: 1,545.1
  - 2014: 1,715.2
  - 2015 (Proj.): 1,903.0
- Claims on private sector (Billions SAR) 2010–2015:
  - 2010: 775.8
  - 2011: 858.4
  - 2012: 999.1
  - 2013: 1,123.6
  - 2014: 1,270.6
  - 2015 (Proj.): 1,434.3
- Ratio of M3-to-GDP (percent) 2010–2015:
  - 2010: 54.7
  - 2011: 48.7
  - 2012: 50.6
  - 2013: 55.1
  - 2014: 58.7
  - 2015 (Proj.): 63.2

### Financial soundness indicators (Table 6, 2006–13)
- Banking sector structure and key ratios (2006–2013):
  - Number of licensed banks: 2006: 16.0; 2007–2013: 22.0–24.0 (ends 24.0 in 2013)
  - Total assets (percent of GDP): 2006: 61.0; 2007: 69.0; 2008: 66.8; 2009: 85.2; 2010: 71.6; 2011: 61.5; 2012: 63.0; 2013: 67.5
  - Total loans (percent of GDP): 2006: 35.2; 2007: 38.2; 2008: 38.2; 2009: 45.8; 2010: 39.2; 2011: 39.8; 2012: 36.3; 2013: 39.9
  - Credit to private sector (percent of GDP): 2006: 32.7; 2007: 35.8; 2008: 36.6; 2009: 44.0; 2010: 37.6; 2011: 30.0; 2012: 34.9; 2013: 38.4
- Asset quality and provisioning:
  - Gross NPLs to net loans: 2006: 2.0; 2007: 2.1; 2008: 1.4; 2009: 3.3; 2010: 3.0; 2011: 2.3; 2012: 1.9; 2013: 1.3
  - Total provisions to gross NPLs: 2006: 182.3; 2007: 142.9; 2008: 153.3; 2009: 89.8; 2010: 115.7; 2011: 133.2; 2012: 145.1; 2013: 157.4
  - Total provisions for loan losses (as percent of total loans): 2006: 3.6; 2007: 3.0; 2008: 2.1; 2009: 3.0; 2010: 3.5; 2011: 3.1; 2012: 2.8; 2013: 2.1
- Capital adequacy and profitability:
  - Regulatory capital to risk-weighted assets: 2006: 24.9; 2007: 20.7; 2008: 16.0; 2009: 16.9; 2010: 17.6; 2011: 17.6; 2012: 18.2; 2013: 17.9
  - Average pretax return on assets: 2006: 4.3; 2007: 2.8; 2008: 2.7; 2009: 1.9; 2010: 2.5; 2011: 2.0; 2012: 2.0; 2013: 2.0
  - Return on equity: 2006: 30.4; 2007: 22.3; 2008: 20.5; 2009: 13.7; 2010: 17.7; 2011: 14.5; 2012: 14.5; 2013: 14.3
- Liquidity and sensitivity to market risk:
  - Liquid assets to total assets: 2006: 25.4; 2007: 21.7; 2008: 22.0; 2009: 25.3; 2010: 24.7; 2011: 22.6; 2012: 23.7; 2013: 21.5
  - Customer deposits to net loans: 2006: 137.4; 2007: 136.3; 2008: 124.0; 2009: 128.5; 2010: 136.0; 2011: 135.9; 2012: 132.0; 2013: 129.2
  - Foreign currency-denominated deposits to total deposits: 2006: 19.3; 2007: 15.4; 2008: 15.5; 2009: 16.1; 2010: 13.0; 2011: 14.6; 2012: 17.3; 2013: 15.0
- Stock market indicators:
  - Stock market capitalization (percent of GDP) 2006–2013: 86.9, 124.8, 47.4, 74.3, 67.1, 50.6, 50.9, 62.5
  - Overall stock market price index (change in percent) 2006–2013: -52.5, 39.1, -56.5, 27.5, 8.2, -3.1, 6.0, 25.5

*Source: Saudi Arabian authorities; and IMF staff estimates and projections.*

### Appendix I. Debt Sustainability Exercise

### Appendix I. Debt Sustainability Exercise

### Baseline scenario: key indicators (in percent of GDP unless otherwise indicated)
- Nominal gross public debt: 29.2 (2012), 3.6 (2013), 2.7 (2014), 2.6 (2015), 2.5 (2016), 2.4 (2017), 2.3 (2018), 2.2 (2019), 2.1
- Public gross financing needs: -4.6 (2012), -10.1 (2013), -4.9 (2014), -2.5 (2015), 1.4 (2016), 3.5 (2017), 5.2 (2018), 7.3 (2019), 7.4, 5
- Real GDP growth (percent): 6.4 (2012), 5.8 (2013), 4.0 (2014), 4.6 (2015), 4.5 (2016), 4.4 (2017), 4.4 (2018), 4.4 (2019), 4.4
- Inflation (GDP deflator, percent): 8.4 (2012), 3.6 (2013), -1.9 (2014), -0.4 (2015), -1.4 (2016), -0.9 (2017), -0.1 (2018), 0.3 (2019), 0.5
- Nominal GDP growth (percent): 15.5 (2012), 9.6 (2013), 2.0 (2014), 4.1 (2015), 3.0 (2016), 3.4 (2017), 4.4 (2018), 4.8 (2019), 4.9
- Effective interest rate (percent): 5.1 (2012), 4.5 (2013), 4.7 (2014), 4.7 (2015), 4.8 (2016), 4.9 (2017), 5.0 (2018), 5.2 (2019), 5.5
- Sovereign spreads: EMBIG (bp) 3/94; 5Y CDS (bp) 63
- Ratings: Moody's Aa3 / S&Ps AA- / Fitch AAAA

### Contribution to changes in public debt (levels and flows)
- Change in gross public sector debt (cumulative): -9.8 (2012), -1.8 (2013), -0.9 (2014), -0.1 (2015), -0.1 (2016), -0.1 (2017), -0.1 (2018), -0.1 (2019), -0.1, -0.6
- Identified debt-creating flows (cumulative): -12.0 (2012), -2.4 (2013), -0.9 (2014), -0.1 (2015), -0.1 (2016), -0.1 (2017), -0.1 (2018), -0.1 (2019), -0.1, -0.6
- Primary deficit: -12.7 (2012), -12.2 (2013), -5.9 (2014), -2.7 (2015), 1.3 (2016), 3.4 (2017), 5.0 (2018), 7.1 (2019), 7.3, 21.5
- Primary (noninterest) revenue and grants: 42.2 (2012), 45.3 (2013), 41.2 (2014), 40.2 (2015), 37.9 (2016), 35.8 (2017), 34.0 (2018), 32.3 (2019), 30.7, 211.0
- Primary (noninterest) expenditure: 29.5 (2012), 33.1 (2013), 35.3 (2014), 37.5 (2015), 39.3 (2016), 39.2 (2017), 39.0 (2018), 39.5 (2019), 38.0, 232.5

### Automatic debt dynamics (components)
- Automatic debt dynamics (cumulative): -3.8 (2012), -0.3 (2013), 0.1 (2014), 0.0 (2015), 0.0 (2016), 0.0 (2017), 0.0 (2018), 0.0 (2019), 0.0, 0.1
- Interest rate/growth differential: -3.8 (2012), -0.3 (2013), 0.1 (2014), 0.0 (2015), 0.0 (2016), 0.0 (2017), 0.0 (2018), 0.0 (2019), 0.0, 0.1
  - Of which: real interest rate: -1.7 (2012), 0.0 (2013), 0.2 (2014), 0.1 (2015), 0.2 (2016), 0.1 (2017), 0.1 (2018), 0.1 (2019), 0.1, 0.8
  - Of which: real GDP growth: -2.2 (2012), -0.3 (2013), -0.1 (2014), -0.1 (2015), -0.1 (2016), -0.1 (2017), -0.1 (2018), -0.1 (2019), -0.1, -0.6
- Exchange rate depreciation contribution: 0.0 (all years reported)

### Other identified debt-creating and residual flows
- Other identified debt-creating flows: 4.6 (2012), 10.1 (2013), 4.9 (2014), 2.5 (2015), -1.4 (2016), -3.5 (2017), -5.2 (2018), -7.3 (2019), -7.4, -22.2
  - Accumulation of deposits: same as above (4.6; 10.1; 4.9; 2.5; -1.4; -3.5; -5.2; -7.3; -7.4; -22.2)
  - Contingent liabilities: 0.0 (all years)
- Residual, including asset changes: 2.2 (2012), 0.5 (2013), 0.0 (2014), 0.0 (2015), 0.0 (2016), 0.0 (2017), 0.0 (2018), 0.0 (2019), 0.0, 0.0

### Composition of public debt and alternative scenarios — underlying assumptions
- Baseline underlying assumptions (selected):
  - Real GDP growth: 4.6 (2014), 4.5 (2015), 4.4 (2016), 4.4 (2017), 4.4 (2018), 4.4 (2019)
  - Inflation from GDP deflator: -0.4 (2014), -1.4 (2015), -0.9 (2016), -0.1 (2017), 0.3 (2018), 0.5 (2019)
  - CPI inflation: 2.9 (2014), 3.2 (2015), 3.4 (2016), 3.6 (2017), 3.4 (2018), 3.3 (2019)
  - Primary Balance: 2.7 (2014), -1.3 (2015), -3.4 (2016), -5.0 (2017), -7.1 (2018), -7.3 (2019)
  - Effective interest rate: 4.7 (2014), 4.8 (2015), 4.9 (2016), 5.0 (2017), 5.2 (2018), 5.5 (2019)
- Historical scenario assumptions (selected):
  - Real GDP growth: 4.6 (2014), 6.0 (2015), 6.0 (2016), 6.0 (2017), 6.0 (2018), 6.0 (2019)
  - Inflation from GDP deflator and CPI inflation same as baseline
  - Primary Balance: 2.7 (2014), 12.8 (2015), 12.8 (2016), 12.8 (2017), 12.8 (2018), 12.8 (2019)
  - Effective interest rate same as baseline
- Constant Primary Balance scenario:
  - Primary Balance: 2.7 (2014), 2.7 (2015), 2.7 (2016), 2.7 (2017), 2.7 (2018), 2.7 (2019)
  - Other macro assumptions same as baseline

### Projections and composition notes (textual summary of charts)
- Gross nominal public debt and public gross financing needs are shown declining to low levels under the baseline projection (charts indicate very low public debt as percent of GDP).
- Public debt by maturity is overwhelmingly medium and long-term versus short-term (chart labeled "By Maturity").
- Public debt by currency is overwhelmingly local currency-denominated (chart labeled "By Currency").

### Key analytical findings
- Identified drivers of debt reduction include large primary surpluses in earlier years (reflected in negative changes in gross public sector debt) and accumulation of official deposits (other identified debt-creating flows).
- Automatic debt dynamics are slightly negative overall, driven by the interest rate/growth differential (notably a negative real interest rate contribution in 2012, turning mildly positive in later years).
- Alternative scenarios illustrate sensitivity to primary balance and growth assumptions:
  - Historical scenario assumes much stronger growth and large positive primary balances.
  - Constant Primary Balance scenario holds the primary balance at 2.7 percent of GDP throughout the projection period.

*Source: IMF staff.*

### 11.13 billion, from SDR 1.76 billion. The current outstanding amount as of May 31, 2014 is SDR

### SAUDI ARABIA

### IMF Financial Support, Borrowing Agreements, and Contributions
- Current outstanding amount as of May 31, 2014 is SDR 1433.47 million.
- The Fund has a borrowing agreement with Saudi Arabia in association with the General Arrangements to Borrow (GAB) for an amount equivalent to SDR 1.5 billion, renewed for another five-year period from December 26, 2008.
- Saudi Arabia agreed in March 2001 to support the PRG-HIPC Trust with investments totaling SDR 94.4 million.
- In April 2006, investments were extended with an additional investment of SDR 38.2 million, to provide SDR 40 million (end-2005 NPV terms) in subsidy resources to support the Exogenous Shocks Facility.
- In April 2005, Saudi Arabia agreed to provide a grant contribution of US$4 million (equivalent to SDR 2.6 million) to subsidize Emergency Natural Disaster Assistance to low-income countries.
- In May 2012, Saudi Arabia pledged a new grant contribution of SDR 16.7 million in subsidy resources to the PRGT, to be disbursed at end-December 2021.
- In October 2012 and October 2013, Saudi Arabia provided subsidy resources to the PRGT through the transfer of its full share in the distributions of the general reserve attributed to windfall gold sale profits, totaling SDR 71.88 million.
- As Trustee of the Poverty Reduction and Growth Trust (PRGT), the Fund entered into a borrowing agreement with the Saudi Arabian Monetary Agency in May 2011 for new loan resources of up to SDR 500 million.

### Exchange Rate Arrangement
- Saudi Arabia maintains an exchange rate system free of restrictions on the making of payments and transfers for current international transactions.
- The Saudi Arabian riyal was formally pegged to the U.S. dollar, effective January 2003; the exchange arrangement is classified as a conventional peg.
- Prior to January 2003, it was officially pegged to the SDR at the rate of SAR 4.28255=SDR 1, with margins of 7.25 percent, although in practice it has been pegged to the U.S. dollar since 1986, with a middle rate of SAR 3.7450=$1.
- Saudi Arabia maintains security-related exchange restrictions pursuant to UN Security Council resolutions 1267 and 1373.

### Article IV Consultation (2013–2014) — Key Findings and Projections
- Last Article IV consultation: staff visit during May 5–18, 2013; staff report considered by the Executive Board on July 8, 2013 and published on July 24, 2013.
- Press Release No. 14/356, July 21, 2014: IMF Executive Board concluded the 2014 Article IV Consultation with Saudi Arabia.
- Macroeconomic performance and outlook:
  - 2013 growth: the Saudi economy grew by 4 percent in 2013, driven by robust non-oil private sector growth.
  - Unemployment rate of nationals fell over the past year, especially among women.
  - Inflation: eased to 2.7 percent in May 2014, largely due to lower food price inflation.
  - Credit growth: eased but remained at robust levels.
  - Banking system: well-capitalized and profitable; economy not affected by global financial market volatility.
  - Fiscal and external: high oil prices and output led to large fiscal and external surpluses and increased international reserves; fiscal breakeven oil prices have risen owing to strong growth in public spending.
  - Monetary policy: settings unchanged, consistent with the exchange rate peg.
- 2014 projections:
  - Growth projected to pick up to 4.6 percent in 2014.
  - Private sector growth expected to remain strong; oil production expected little changed from 2013.
  - Large-scale infrastructure projects and housing spending to support non-oil sector growth.
  - Inflation expected to remain subdued.
- Policy focus: increasing private sector employment of nationals, addressing housing needs, strengthening transportation infrastructure, and diversifying the economy.

### Executive Board Assessment — Recommendations and Risks
- Directors welcomed robust performance and strong fundamentals; growth outlook positive; risks balanced and centered on the global oil market.
- Fiscal policy:
  - Noted strong fiscal position with one of the lowest debt-to-GDP ratios and largest fiscal surpluses.
  - Saw merit in slowing, over time, the pace of government spending and increasing non-oil revenues to preserve fiscal buffers and ensure intergenerational equity.
  - Encouraged setting the budget within a medium term fiscal framework anchored around estimates of structural oil revenues and integrating expenditure priorities from the national development plan.
  - Welcomed efforts to strengthen public spending efficiency and the plan to establish a macro-fiscal unit.
- Energy pricing:
  - Underscored that an upward adjustment in energy prices would support fiscal strength and efficient energy use.
  - Advised that price adjustment be well-planned and communicated, protecting vulnerable groups.
- Financial stability and monetary policy:
  - Current monetary and macroprudential stance appropriate, but called for careful monitoring of rising equity prices and rapid increase in mortgage lending.
  - Saw merit in introducing a formal macroprudential framework to codify coordination across regulators and enable countercyclical use of instruments.
  - Suggested scope for refining liquidity management.
  - Agreed exchange rate peg to the U.S. dollar remains appropriate.
- Financial sector development:
  - Banking system well-capitalized, profitable, and liquid.
  - Encouraged deepening capital markets, including development of a benchmark yield curve, and promoting financial inclusion.
  - Supported finalizing the framework for systemically important banks and aligning the AML/CFT framework with the CFT law.
- Labor market and diversification:
  - Labor market programs have increased private sector employment, but further action needed to reduce reliance on public sector jobs.
  - Emphasized upgrading skills through education and training.
  - Welcomed steps to target government housing to the less well-off and encouraged ensuring the program does not impede private real estate and mortgage market development.
  - Supported efforts to diversify by improving business environment, investing in infrastructure, and increasing finance for SMEs.
  - Suggested incentives for firms to export and for Saudi workers to participate in the private sector to boost diversification.

### Technical Assistance, FSAP, and Resident Representation
- Technical Assistance (selected missions; dates as provided):
  - STA: GDDS Meta Data Development January 26–February 6, 2008; G20 Data Gap Initiative January 22–23, 2011; Balance of Payment Statistics March 12–23, 2011; National Accounts Statistics April 8–18, 2012; Balance of Payment Statistics November 11–22, 2012; SDDS Assessment March 9–19, 2013; G20 Data Gap Initiative May 27–28, 2014; MCM Stress testing January 9–21, 2010.
  - FAD: Options for Indirect Taxation February 25–March 11, 2006; Public Financial Management and Statistics jointly with STA September 16–30, 2006; Tax Administration November 6–19, 2006; Enhancing Budget Process Reforms January 22–February 2, 2008; Budget Institutions and GFSM2001 (with participation of STA) June 2–5, 2012; GFSM2001 Training Course April 2013; Training workshop on structural fiscal balance rules as a guide for policy February 2014.
- FSAP:
  - Main FSAP mission in January 2004.
  - FSSA published on June 5, 2006; FSSA-update published on April 18, 2012.
  - FSAP-update April 16–30, 2011.
  - Detailed Assessment of Observance published on July 19, 2013.
- No resident representative is stationed in Saudi Arabia.

### Relations with the World Bank Group and IFC Activities
- World Bank TCP has provided policy advice, capacity development, and implementation support to Saudi Arabia on a reimbursable basis since 1975.
- TCP priorities and recent advisory work include: public financial management, small and medium enterprise strategy, economic diversification strategy, special economic zones, housing finance regulations, employment policy and unemployment assistance, education quality and decentralization, energy-efficient investment funding options, water sector strategy, national ports strategy implementation, and advising on creation of a Public Transport Authority.
- IFC activities increased significantly, with objectives to:
  - Promote selective business in Saudi Arabia: specific investments in the financial sector include housing finance, insurance, leasing and microfinance (with total commitments around $180 million); Advisory Services in mortgage finance, SME finance, corporate governance, risk management and PPP transactions.
  - Promote South-South investments from Saudi Arabia: IFC Riyadh activity facilitated south-south investments that reached around $1.4 billion in IDA and middle income countries.
  - Mobilize funds: efforts with Saudi public institutions and IFIs have obtained commitments of over US$500 million.

### Statistical Issues and Data Adequacy for Surveillance (As of May 31, 2014)
- General assessment: Data provision has some shortcomings, but is broadly adequate for surveillance. Most affected areas: national accounts, labor markets, government finance statistics, and external sector statistics.
- National accounts: Annual GDP estimates revised since 2004; CDSI rebasing GDP volume estimates to 2012 (base year currently 1999) to address possible changes in structure of relative prices.
- Government finance statistics: Authorities reclassifying the budget in line with GFSM 2001; most chapters completed; Ministry of Finance plans to report and publish fiscal data in GFSM 2001 format by early 2015.
- Monetary and financial statistics: Quality improved in the last year; additional information available in Central Bank Monthly Bulletin; authorities still report using old report forms rather than Standardized Report Forms (SRFs) based on the MFS Manual and Compilation Guide.
- Financial sector surveillance: Authorities report 10 out of 12 core financial soundness indicators (FSIs) to the IMF.
- External sector statistics: Authorities publish an annual IIP; coverage in capital and financial accounts, particularly for the private sector, needs improvement; errors and omissions in 2013 BOP reduced substantially due to improved coverage of trade credits; authorities working to strengthen financial account statistics.
- Data Standards and Quality:
  - Participant in the General Data Dissemination System (GDDS) since 2008.
  - No data ROSC is available.

### Table of Common Indicators Required for Surveillance (As of May 31, 2014) — Selected Dates and Frequencies
- Exchange rates: Date of latest observation 5/30/2014; Date received 5/31/2014; Frequency of data D; Frequency of reporting D; Frequency of publication D.
- International reserve assets and reserve liabilities of the monetary authorities: Date of latest observation 4/2014; Date received 5/31/2014; Frequency M/M/M.
- Reserve/base money: 4/2014; 5/31/2014; M/M/M.
- Broad Money: 4/2014; 5/31/2014; M/M/M.
- Central Bank balance sheet: 4/2014; 5/31/2014; M/M/M.
- Consolidated balance sheet of the banking system: 4/2014; 5/31/2014; M/M/M.
- Interest rates: 4/2014; 5/31/2014; M/M/M.
- Consumer price index: 4/2014; 5/31/2014; M/M/M.
- Revenue, expenditure, balance and composition of financing—central government: 2013; Date received 5/14/2014; Frequency A/A/A.
- Stocks of central government and central government-guaranteed debt: 2013; 5/14/2014; A/A/A.
- External current account balance: Q4 2013; 5/12/2014; Q/Q/Q.
- Exports and imports of goods and services: Q4 2013; 5/14/2014; Q/Q/Q.
- GDP/GNP: Q4 2013; 5/11/2014; Q/Q/Q.
- Gross external debt (BIS): Q3 2013; Q/Q/Q.
- International investment position: 2012; 5/31/2014; A/A/A.

### Selected Economic Indicators, 2010–14 (Staff Estimates and Projections)
- Production and prices (Annual percent change unless otherwise stated):
  - Real GDP: 2010: 7.4; 2011: 8.6; 2012: 5.8; 2013: 4.0; 2014 (Proj.): 4.6.
  - Real oil GDP: 2010: 0.3; 2011: 11.0; 2012: 5.7; 2013: -1.0; 2014 (Proj.): 0.6.
  - Real non-oil GDP: 2010: 9.5; 2011: 7.9; 2012: 5.8; 2013: 5.3; 2014 (Proj.): 5.6.
  - Nominal GDP (billions of U.S. dollars): 2010: 527; 2011: 670; 2012: 734; 2013: 748; 2014 (Proj.): 779.
  - Consumer price index (avg): 2010: 3.8; 2011: 3.7; 2012: 2.9; 2013: 3.5; 2014 (Proj.): 2.9.
- Fiscal and Financial variables (Percent of GDP unless otherwise stated):
  - Central Government revenue: 2010: 37.5; 2011: 44.5; 2012: 45.3; 2013: 41.2; 2014 (Proj.): 40.2.
  - Of which: oil revenue: 2010: 33.9; 2011: 41.2; 2012: 41.6; 2013: 36.9; 2014 (Proj.): 35.8.
  - Central Government expenditure: 2010: 34.0; 2011: 33.4; 2012: 33.3; 2013: 35.4; 2014 (Proj.): 37.6.
  - Fiscal balance (deficit -): 2010: 3.6; 2011: 11.2; 2012: 12.0; 2013: 5.8; 2014 (Proj.): 2.5.
  - Non-oil primary balance (percent of non-oil GDP): 2010: -54.1; 2011: -60.9; 2012: -59.5; 2013: -59.5; 2014 (Proj.): -61.3.
  - Broad money (annual percent change): 2010: 5.0; 2011: 13.3; 2012: 13.9; 2013: 10.9; 2014 (Proj.): 11.0.
- External sector (US$ billions unless otherwise stated):
  - Exports: 2010: 251.1; 2011: 364.7; 2012: 388.4; 2013: 377.0; 2014 (Proj.): 377.8.
  - Of which: Oil and refined products: 2010: 215.2; 2011: 317.6; 2012: 337.5; 2013: 323.1; 2014 (Proj.): 320.3.
  - Imports: 2010: -97.4; 2011: -120.0; 2012: -141.8; 2013: -152.7; 2014 (Proj.): -163.3.
  - Current account: 2010: 66.8; 2011: 158.6; 2012: 164.8; 2013: 134.3; 2014 (Proj.): 120.2.
  - Current account (percent of GDP): 2010: 12.7; 2011: 23.7; 2012: 22.4; 2013: 17.9; 2014 (Proj.): 15.4.
  - SAMA’s net foreign assets: 2010: 440.4; 2011: 535.2; 2012: 647.6; 2013: 716.7; 2014 (Proj.): 768.5.
  - SAMA's net foreign assets (in months of imports of goods and services): 2010: 26.7; 2011: 29.8; 2012: 33.9; 2013: 35.2; 2014 (Proj.): 35.4.
  - Real effective exchange rate (percent change)1: 2010: -0.2; 2011: -3.5; 2012: 2.7; 2013: 2.0; 2014 (Proj.): -1.4.
- Note: Latest 2014 data for the real effective exchange rate is for end-April.

*Source: IMF staff report and related material as contained in the provided content unit.*

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