IMF Executive Board Concludes 2018 Article IV Consultation with Saudi Arabia
IMF News, July 24, 2018
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- Published: July 24, 2018
Macroeconomic outlook and growth
- Real GDP growth is expected to increase to 1.9 percent in 2018.
- Non-oil growth is expected to strengthen to 2.3 percent in 2018.
- Growth is expected to pick-up further over the medium-term as the reforms take hold and oil output increases.
- Risks are balanced in the near-term.
- CPI inflation:
- Forecast at 3 percent in 2018.
- Expected to stabilize at around 2 percent over the medium-term.
- Unemployment:
- Overall unemployment rate: 5.6 percent (2016), 6.0 percent (2017).
- Unemployment rate among Saudi nationals: 12.3 percent (2016), 12.8 percent (2017).
- Employment of Saudi nationals has increased, especially for women.
Fiscal outlook and public finances
- Fiscal balance (central government):
- Fiscal deficit projected to narrow from 9.3 percent of GDP in 2017 to 4.6 percent of GDP in 2018 and then to 1.7 percent of GDP in 2019.
- With oil prices implied by futures markets declining over the medium-term, the deficit is then projected to widen.
- Financing:
- The deficit is expected to continue to be financed by a combination of asset drawdowns and domestic and international borrowing.
- Public debt:
- Public debt (% GDP): 13.1 (2016), 17.2 (2017), 19.1 (2018), 20.3 (2019).
- Central government finances (selected):
- Revenue (% GDP): 21.5 (2016), 24.1 (2017), 30.6 (2018), 31.7 (2019).
- Expenditure (% GDP): 38.7 (2016), 33.4 (2017), 35.2 (2018).
- Non-oil primary balance (% Nonoil GDP): -45.7 (2016), -39.7 (2017), -41.7 (2018), -36.9 (2019).
- Directors’ fiscal guidance and recommendations:
- Aiming for a balanced budget by 2023 is appropriate.
- Importance of fully implementing revenue reforms and limiting future growth of government spending to achieve fiscal objectives.
- If oil prices exceed budget assumptions, most Directors recommended saving additional revenues to rebuild fiscal buffers.
- Encourage anchoring fiscal spending in a medium-term expenditure framework.
- Support ongoing civil service review to identify reforms to contain the wage bill.
- Welcome efforts to strengthen the medium-term fiscal framework, increase fiscal transparency, and develop macro-fiscal analysis.
- Emphasize integrated asset-liability management framework to guide government borrowing and investment decisions.
Revenue measures and price reforms
- Authorities have introduced the value-added tax (VAT) and implemented higher gasoline and electricity prices at the beginning of 2018.
- Directors:
- Welcomed the introduction of the VAT and encouraged preparations to lower the VAT registration threshold in 2019.
- Supported gradual increases in energy prices and urged more communication about future price increases.
- Emphasized ensuring citizens’ accounts adequately compensate low and middle-income households for the impact of price increases.
External sector and reserves
- Current account:
- Expected surplus of 9.3 percent of GDP in 2018 as oil export revenues increase and remittance outflows remain subdued.
- Current account (% GDP): -3.7 (2016), 9.3 (2017), 8.8 (2018).
- SAMA net foreign assets are expected to increase this year and over the medium-term.
- Reserves (months imports): 32.3 (2016), 28.4 (2017), 29.2 (2018), 30.2 (2019).
- External debt (% GDP): 28.9 (2016), 34.9 (2017), 35.7 (2018), 36.5 (2019).
- Directors agreed that the exchange rate peg to the U.S. dollar continues to serve Saudi Arabia well given the structure of the Saudi economy.
Financial sector and credit
- Credit and deposit growth remain weak but are expected to strengthen due to higher government spending and non-oil growth.
- Money and credit:
- Broad money (% change): 0.8 (2016), 0.2 (2017), 2.3 (2018), 2.8 (2019).
- Credit to the private sector (% change): 2.4 (2016), -0.8 (2017), 2.2 (2018).
- Bank sector outlook:
- Bank profitability should increase as interest margins widen.
- Banks remain well capitalized and liquid.
- Directors’ financial sector recommendations:
- Continue focus on financial development and inclusion.
- Prioritize increasing SME finance, improving financial sector access (particularly for women), and developing the debt market.
- Welcome SAMA’s efforts to strengthen liquidity management.
- Encourage continued strengthening of the Anti-Money Laundering/Countering the Financing of Terrorism framework.
Structural reforms, labor market, and private sector development
- Ongoing reforms include improving the business environment, developing a more vibrant SME sector, deepening capital markets, increasing involvement of women in the economy, and developing new industries with high potential for growth and job creation.
- Directors’ structural reform guidance:
- Continue structural reforms in consultation with the private sector.
- Accelerate privatization and public-private partnership programs.
- Public sector can be a catalyst for new sectors but should not crowd-out the private sector.
- Policies to create jobs for nationals in the private sector should level the playing field between Saudis and expatriates.
- Additional measures: set clear expectations about public sector employment prospects, reform the visa system for expatriate workers, strengthen education and training, and address remaining constraints to female employment.
Selected economic indicators (2016–19)
- Population: 32.6 million (2017)
- Quota: SDR 6,985.5 million (2.93% of total)
- Literacy: 95% (2015, adults)
- Main products and exports: Oil and oil products (77%)
- Key export markets: Asia, U.S., and Europe
- Table (selected series):
- Real GDP growth: 1.7 (2016), -0.9 (2017), 1.9 (2018), … (2019 not shown)
- CPI Inflation (%): 2.0 (2016), 3.0 (2017)
- Revenue (% GDP): 21.5 (2016), 24.1 (2017), 30.6 (2018), 31.7 (2019)
- Expenditure (% GDP): 38.7 (2016), 33.4 (2017), 35.2 (2018)
- Fiscal balance (% GDP): -17.2 (2016), -9.3 (2017), -4.6 (2018), -1.7 (2019)
- Public debt (% GDP): 13.1 (2016), 17.2 (2017), 19.1 (2018), 20.3 (2019)
- Non-oil primary balance (% Nonoil GDP): -45.7 (2016), -39.7 (2017), -41.7 (2018), -36.9 (2019)
- Broad money (% change): 0.8 (2016), 0.2 (2017), 2.3 (2018), 2.8 (2019)
- Credit to the private sector (% change): 2.4 (2016), -0.8 (2017), 2.2 (2018)
- Current account (% GDP): -3.7 (2016), 9.3 (2017), 8.8 (2018)
- FDI (% GDP): 1.2 (2016)
- Reserves (months imports): 32.3 (2016), 28.4 (2017), 29.2 (2018), 30.2 (2019)
- External debt (% GDP): 28.9 (2016), 34.9 (2017), 35.7 (2018), 36.5 (2019)
- REER (% change): 4.8 (2016), -5.1 (2017), -5.4 (2018)
- Unemployment rate overall (% total labor force): 5.6 (2016), 6.0 (2017)
- Unemployment rate nationals (% total labor force): 12.3 (2016), 12.8 (2017)
Source: Press Release No. 18/304 — IMF Executive Board Concludes 2018 Article IV Consultation with Saudi Arabia.
