IMF Staff Completes 2017 Article IV Mission to Saudi Arabia

IMF News, May 17, 2017

Source details

Press Release No. 17/178; May 17, 2017.
An IMF team led by Tim Callen held discussions from April 30–May 11 on the 2017 Article IV Consultation with Saudi Arabia.
The mission’s statement conveys preliminary findings; staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.
The authorities have embarked on reforms under Vision 2030 aimed at diversifying the economy, expanding the private sector role, increasing private-sector jobs for Saudis, and adjusting fiscal policy to ensure macroeconomic stability.

Finding: "A large, sustained, and well-paced fiscal adjustment is needed to achieve budget balance over the medium term."
Recommendation: The aim of bringing about a large, sustained, and well-paced fiscal adjustment to achieve a balanced budget is appropriate.
Timing guidance: The target of balancing the budget does not need to be met in 2019 as set out in the Fiscal Balance Program (FBP) given Saudi Arabia’s strong financial asset position and its low debt.
Policy alternative: A more gradual fiscal consolidation to achieve budget balance a few years later would reduce near-term effects on growth while still preserving fiscal buffers to help manage future risks.
Revenue measures emphasized: Successfully implementing non-oil revenue reforms such as the excises and VAT is very important.

Priority: Energy price reforms are a key priority.
Implementation advice: There is scope for gradual implementation to give households and businesses more time to adjust.
Social mitigation: The household allowance is described as a welcome and powerful tool to support low- and middle-income households as energy prices increase.
Industry support: Support to industry should be available on a limited, temporary, and transparent basis.

Positive assessment: "The authorities are beginning to make good progress in identifying and reducing obstacles to private sector growth."
Examples of reforms under way:
- Reducing custom clearance times.
- Making it easier to start a business.
- Moving toward completion of the new bankruptcy and commercial mortgage laws.
Further actions: In collaboration with the business community, these efforts should continue.
Upcoming measures: Additional reforms are expected in the coming months, including an ambitious privatization and PPP program to reduce the role of the government in the economy.

Priority: Creating more jobs for Saudi nationals in the private sector is essential.
Recommendation: A national dialogue between the government, businesses, and workers/entrepreneurs could help find tailored solutions to the jobs challenge.
Labor-market measures: Consideration needs to be given to how to increase the competitiveness of Saudi workers in the private sector.
Expatriate policy: Allowing greater mobility of expatriate workers in the economy would help close the wage gap between Saudi nationals and expatriates.
Female participation: Women are as well educated as men, and their participation in the labor force has been increasing in recent years; however, the level is still low and continued efforts are needed to enable women to contribute more to growth and productivity.

Transparency: Recent steps to increase the transparency of fiscal policy through the publication of the Fiscal Balance Program and the First Quarter Budget Report are very welcome and will help private businesses and investors better plan investment and employment decisions.
Banking sector: Banks are well regulated and supervised, and SAMA has successfully managed emerging financial sector risks over the past year.
Capital markets: Efforts by the Capital Market Authority to develop local capital markets are very welcome and will provide more financing and saving opportunities in the domestic economy.

Exchange rate policy: "The exchange rate peg to the U.S. dollar continues to serve Saudi Arabia well given the structure of the economy."
Overall message: Reforms are ambitious; further efforts on effective prioritization, sequencing, coordination, and communication will be needed to maximize chances of successful implementation.

Statement by IMF staff at the conclusion of the 2017 Article IV mission to Saudi Arabia (May 17, 2017).