IMF Executive Board Concludes 2019 Article IV Consultation with Saudi Arabia

IMF News, July 18, 2019

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On July 10, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV Consultation with Saudi Arabia.
Real non-oil growth is expected to strengthen to 2.9 percent in 2019 as government spending and confidence increase.
Real GDP growth is projected to slow to 1.9 percent in 2019 as real oil growth slows to 0.7 percent with the implementation of the OPEC+ agreement.
Growth is expected to pick-up over the medium-term as ongoing reforms take hold.
The unemployment rate among Saudi nationals is reported at 12.5 percent.

Real GDP growth:
- 2017: -0.7
- 2018: 2.2
- 2019 (Proj.): 1.9
- 2020 (Proj.): 3.0
Real non-oil growth: expected to strengthen to 2.9 percent in 2019.
Real oil growth: projected to slow to 0.7 percent in 2019 with OPEC+ implementation.
CPI inflation:
- 2017: -0.9
- 2018: 2.5
- 2019 (Proj.): -1.1
- Inflation is forecast to decline by 1.1 percent in 2019, before turning positive in 2020 as further energy price increases are implemented.
Money and credit:
- Broad money (% change): 2017: 0.2; 2018: 2.8; 2019 (Proj.): 3.5
- Credit to the private sector (% change): 2017: -0.8; 2018: 3.3; 2019 (Proj.): 3.4
Bank liquidity: expected to remain comfortable; credit growth expected to strengthen with the stronger non-oil economy.

Fiscal balance (% GDP):
- 2017: -9.2
- 2018: -5.9
- 2019 (Proj.): -6.5
- 2020 (Proj.): -5.1
Fiscal deficit: projected to widen to 6.5 percent of GDP in 2019 from 5.9 percent of GDP in 2018 as spending is projected to increase and exceed the budgeted amount and offset an increase in non-oil revenues.
Revenue and expenditure (% GDP):
- Revenue: 2017: 24.1; 2018: 30.9; 2019 (Proj.): 33.2
- Expenditure: 2017: 33.3; 2018: 36.8; 2019 (Proj.): 39.7; 2020 (Proj.): 38.2
Public debt (% GDP):
- 2017: 17.2
- 2018: 19.1
- 2019 (Proj.): 23.0
- 2020 (Proj.): 24.7
Non-exported oil primary balance (% Nonoil GDP):
- 2017: -38.5
- 2018: -39.5
- 2019 (Proj.): -38.4
- 2020 (Proj.): -34.6
With oil prices implied by futures markets declining over the medium-term, the deficit is projected to widen beyond 2020 unless offsetting measures are taken.

Current account (% GDP):
- 2017: 1.5
- 2018: 9.2
- 2019 (Proj.): 6.9
- 2020 (Proj.): 6.0
Reserves (months imports):
- 2017: 27.9
- 2018: 26.7
- 2019 (Proj.): 26.5
- 2020 (Proj.): 25.8
External debt (% GDP):
- 2017: 27.7
- 2018: 28.3
- 2019 (Proj.): 30.2
- 2020 (Proj.): 31.1
FDI (% GDP): 2017: 0.4 (other years not shown)
Directors agreed that, given the current structure of the economy, the exchange rate peg to the U.S. dollar continues to serve the economy well.

Ongoing reforms highlighted:
- Lowering the registration threshold for the VAT.
- Adjusting gasoline prices on a quarterly basis.
- Increasing fiscal transparency.
- Reforms to capital markets, legal framework, business environment, and the SME sector.
Labor market:
- Unemployment rate overall (% total labor force): 5.7 (year not specified)
- Nationals (% total labor force): 2017: 12.8; 2018: 12.7; 2019 (latest available): 12.5
- Directors emphasized aligning wages and productivity, strengthening education and training, increasing female employment, and setting clear expectations about limited public sector employment prospects.
Inclusion and social assistance:
- Directors underscored that reforms should be inclusive and vulnerable households protected from negative effects.
- They welcomed the review of social assistance programs to ensure adequacy and targeting.

Directors welcomed the continued resilience of the financial sector and ongoing capital market reforms.
Development areas:
- Agency banking and Fintech could help broaden financial access.
- Improving financial access for young and growing companies, women, and youth is important; specific sector lending targets should be avoided.
AML/CFT:
- Directors welcomed Saudi Arabia’s ongoing strengthening of the AML/CFT framework and its recent membership of the Financial Action Task Force.

Executive Directors agreed with the staff appraisal and commended progress in implementing the economic and social reform agenda, including VAT introduction and energy price reforms.
Key policy messages and recommendations:
- Continue prudent macroeconomic policies and prioritize reforms to promote non-oil growth, create jobs for nationals, and achieve Vision 2030 objectives.
- Fiscal consolidation is key to rebuilding fiscal buffers and reducing medium-term fiscal vulnerabilities.
- Build on fiscal reforms, including continuing planned energy and water price reforms and increases in expatriate labor fees.
- Additional fiscal measures will be needed; contain the government wage bill and consider a more measured increase in capital spending to yield fiscal savings.
- Improve expenditure management and strengthen the fiscal framework; publish more detailed budget and spending execution data to increase fiscal transparency.
- Strengthen public procurement reforms to improve spending efficiency and reduce corruption risks.
- Adopt a robust asset-liability management framework to guide public sector balance sheet, cash flows, and risk/return tradeoffs.
- Implement industrial policies carefully; any government support should be sectoral, time bound, and have strict performance criteria.
- Focus labor market policies on skills, productivity, and incentives to encourage private-sector employment.
- Ensure reforms are inclusive and protect vulnerable households.

IMF Executive Board Concludes 2019 Article IV Consultation with Saudi Arabia — Press Release No. 19/287