Press Release: IMF Mission Statement at the Conclusion of Article IV Discussions with Saudi Arabia

IMF News, May 20, 2013

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Canonical URL: Press Release: IMF Mission Statement at the Conclusion of Article IV Discussions with Saudi Arabia

IMF team led by Mr. Tim Callen, IMF Mission Chief to Saudi Arabia, held discussions during May 5-18 on the 2013 Article IV Consultation with Saudi Arabia.
Press Release No. 13/184; dated May 20, 2013.

Saudi Arabia described as one of the best performing economies of the G-20 in recent years.
Average rate of real GDP growth during 2008-12 ranked third behind China and India.
Projections for 2013:
- Non-oil private sector projected to grow by 7.6 percent in 2013.
- Overall GDP growth expected at 4.4 percent.
Drivers and constraints noted:
- Oil output likely to be lower than its average level in 2012.
- Growth rate of government spending looks set to slow.
- Lower oil output and oil prices will likely result in smaller fiscal and current account surpluses in 2013, though surpluses will remain substantial.
Inflation:
- Inflation has picked-up since the middle of 2012 due to higher food prices and price increases in restaurants, hotels, and transportation, but remains contained at 4 percent.

Saudi Arabia plays a systemic role by helping provide stability to the global oil market.
The country increased oil production in 2011 and 2012, helping prevent supply disturbances in other countries from negatively impacting 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 south Asia.

The Saudi population is young and increasingly well-educated as it enters working-age years, presenting opportunities to boost growth and raise living standards.
Challenges highlighted:
- Creating jobs for the growing Saudi population of working age is a key priority.
- Addressing housing needs.
- Managing demand on natural resources.
Ongoing and recommended policy directions:
- Initiatives advancing to increase employment of nationals in the private sector and provide support to jobseekers.
- Increased employment of Saudis in the private sector will require:
- Reduced reliance on jobs in the public sector.
- Measures to increase competitiveness of Saudi workers, including continued efforts to strengthen education and training.
- Expanded opportunities for women.
- Maintaining strong growth in the private sector is important for job creation.
- Government investment in infrastructure, particularly transportation.
- Measures aimed at strengthening the small and medium-sized enterprise (SME) sector.

With a growing population, domestic energy consumption is likely to continue to grow strongly.
Government responses include improving energy efficiency and developing alternate energy sources.
IMF mission view:
- An upward adjustment of energy prices over time will likely be needed to curb the growth of domestic energy consumption.
- International experience suggests energy price reform needs to be well-planned, phased, and clearly communicated.
- Implementing mitigating measures to protect lower income groups is essential.

Macroeconomic policies should remain vigilant for signs that continued strong economic growth is leading to increased inflationary pressures.
Fiscal policy:
- Government’s fiscal policy looks set to appropriately slow the pace of spending growth in 2013 after the large increases in 2011 and 2012; this will help contain demand pressures.
Contingent measures:
- If inflation were to pick up more than expected or evidence of supply bottlenecks were to emerge, then either macro-prudential policy would need to be adjusted or capital spending projects slowed.

Fiscal position characterized as very strong:
- In recent years, the government has run large budget surpluses, reduced debt to very low levels, and built up considerable financial assets.
- Budget management has been considerably strengthened.
From this position of strength, the IMF encourages the government to consider further fiscal reforms.
Specific recommendation:
- Further develop fiscal tools, including those dealing with oil price uncertainty.

Source: IMF Mission Statement at the Conclusion of Article IV Discussions with Saudi Arabia (Press Release No. 13/184, May 20, 2013).