Saudi Arabia: Selected Issues

IMF Staff Country Reports, August 24, 2018

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The paper suggests the government should continue to work on clearly defining its fiscal policy objectives, but at this stage the focus of reforms should be to continue to strengthen the fiscal framework rather than introducing a formal fiscal rule.
A fiscal rule is only as good as the institutions that support it.
Resource-rich countries’ experiences with fiscal rules have been mixed; it has proven difficult to formulate rules which are simple, flexible, and robust and that can withstand large commodity prices swings.
One key question is to define long-term fiscal policy objectives beyond 2023; this will help determine how to anchor fiscal policy.
While a target for the overall balance, as announced in the Fiscal Balance Program, is a reasonable objective for the next 5 years, such a target may not deliver the longer-term fiscal goals.
The overall balance target is subject to swings in oil prices:
- It may not be achievable if oil prices decline significantly.
- If oil prices were to increase substantially, the target could be achieved even if spending increased to a level that raises future fiscal vulnerabilities.
It would be better to formulate fiscal policy objectives in terms of the primary non-oil balance rather than the overall balance.

Continue strengthening the fiscal framework before introducing a formal fiscal rule.
Prioritize building institutions that can support any future fiscal rule to ensure rules are effective.
Define long-term fiscal policy objectives beyond 2023 to guide the choice of fiscal anchor.
Consider anchoring fiscal policy on the primary non-oil balance rather than the overall balance to reduce susceptibility to oil price swings.

Subject: Budget planning and preparation; Expenditure; Fiscal policy; Fiscal rules; Oil prices; Prices; Public financial management (PFM)
Keywords: Budget planning and preparation, CR, employment quota, expatriate worker, firm, Fiscal rules, Global, ISCR, oil price, Oil prices, price, private equity, revenue, venture capital, worker