IMF Executive Board Concludes 2017 Article IV Consultation with Saudi Arabia
IMF News, July 21, 2017
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- Published: July 21, 2017
Growth and inflation
- Non-oil growth is projected to pick up to 1.7 percent in 2017.
- Overall real GDP growth is expected to be close to zero in 2017 as oil GDP declines in line with Saudi Arabia’s commitments under the OPEC+ agreement.
- Growth is expected to strengthen over the medium-term as structural reforms are implemented.
- Employment growth has weakened; the unemployment rate among Saudi nationals has increased to 12.3 percent.
- CPI inflation: after increasing in early 2016 due to higher energy and water prices, CPI inflation has turned negative in recent months. It is expected to increase over the next year due to:
- the recently introduced excise taxes,
- further energy price reforms, and
- the introduction of the VAT at the beginning of 2018.
Fiscal outlook and public finances
- Fiscal deficit projections:
- 2016: 17.2 percent of GDP
- 2017: 9.3 percent of GDP (projected)
- By 2022: just under 1 percent of GDP (projected)
- These projections assume:
- Major non-oil revenue reforms and energy price increases outlined in the Fiscal Balance Program are introduced on schedule.
- Operational and expenditure savings identified by the Bureau of Spending Rationalizations are realized.
- Financing of the deficit is expected to continue via a combination of asset drawdowns and domestic and international borrowing.
- Directors’ views:
- A large, sustained, and well‑paced fiscal adjustment is needed over the medium term.
- Most Directors noted Saudi Arabia has the fiscal space to allow a more gradual consolidation than envisaged in the Fiscal Balance Program; a few cautioned that backloading adjustment could incur risks.
- Directors welcomed progress in enhancing non‑oil revenue, including excises on tobacco and carbonated/energy drinks, and the authorities’ commitment to introduce the VAT at the beginning of 2018.
- Recommendation to keep exemptions and zero‑rated items to a minimum.
- Support for planned public expenditure review and emphasis on gradually reducing the wage bill, strengthening social safety nets, and improving efficiency of capital spending.
External sector and monetary/financial conditions
- Current account and reserves:
- Current account expected to move into a small surplus in 2017 as oil export revenues increase and import growth and remittance outflows remain relatively subdued.
- Net financial outflows are expected to continue.
- SAMA’s NFA is projected to continue to decline, although it will remain at a comfortable level.
- Banking and liquidity:
- Credit and deposit growth are weak and are only expected to recover gradually.
- Interbank interest rates, which spiked higher during 2016, have fallen.
- Liquidity in the banking system is at adequate levels.
- Non-performing loans (NPLs) increased slightly to 1.4 percent, but remain low.
- Directors welcomed Financial System Stability Assessment findings that banks are well regulated and supervised, and commended SAMA’s steps to strengthen regulatory and supervisory frameworks, develop the macroprudential framework, and the financial safety net.
- They saw scope for SAMA to strengthen its liquidity management framework.
- Directors welcomed efforts to strengthen AML/CFT framework and looked forward to finalization of risk assessments.
- Exchange rate:
- Directors agreed that the exchange rate peg to the U.S. dollar remains appropriate given the structure of the Saudi economy, and emphasized that continued fiscal adjustment is crucial to support the peg.
- They saw merit in reviewing the peg periodically to ensure it remains appropriate.
Structural reforms, labor market, and governance
- Saudi Arabia’s Vision 2030 reform agenda (announced 2016) — authorities have made considerable progress initiating implementation.
- Fiscal consolidation efforts are beginning to bear fruit.
- Reforms to improve the business environment are gaining momentum; framework to increase transparency and accountability of government is largely in place.
- Policy priorities and guidance from Directors:
- Effective prioritization, sequencing, coordination, clear communication, and equitable design of reforms are essential to gain social buy‑in and ensure success.
- Further steps to boost female labor force participation and employment are called for.
- Increasing employment of Saudi nationals in the private sector is essential; strengthen education and training and clearly communicate limited prospects for future public sector employment to incentivize private sector work.
- Directors welcomed privatization and public‑private partnership plans but cautioned authorities to guard against fiscal risks.
- Encouraged authorities to continue to address data gaps and subscribe to the Special Data Dissemination Standard.
Executive Board Assessment (summary of Directors’ views)
- The Saudi economy is adjusting to lower oil prices and fiscal consolidation; non‑oil growth is expected to pick up in 2017 and overall growth to strengthen over the medium term as structural reforms are implemented.
- Directors commended the authorities’ progress on their ambitious reform agenda and emphasized proper calibration and sequencing of reforms.
- Directors welcomed fiscal reform direction and non‑oil revenue efforts; emphasized establishing an effective and efficient tax system.
- Support for planned energy price reforms, while stressing equity and the importance of a household allowance to cushion impacts on low‑ and middle‑income households; some Directors suggested more gradual phasing of price increases.
- Directors welcomed improvements in fiscal transparency and supported further progress, including the public expenditure review.
- Directors welcomed removal of obstacles to private sector growth and intensive consultation with the business community.
- Directors noted that banks are well regulated and supervised, and encouraged completion of AML/CFT risk assessments.
Selected Economic Indicators (2012–17, as presented)
- Real GDP (Annual percent change)
- 2012: 5.4
- 2013: 2.7
- 2014: 3.7
- 2015: 4.1
- 2016: 1.7
- 2017 (Proj.): 0.1
- Real oil GDP (Annual percent change)
- 2012: 5.1
- 2013: -1.6
- 2014: 2.1
- 2015: 5.3
- 2016: 3.8
- 2017 (Proj.): -1.9
- Real non-oil GDP (Annual percent change)
- 2012: 5.5
- 2013: 6.4
- 2014: 4.9
- 2015: 3.2
- 2016: 0.2
- 2017 (Proj.): (value not listed in table)
- Nominal GDP (billions of U.S. dollars)
- 2012: 736
- 2013: 747
- 2014: 756
- 2015: 654
- 2016: 646
- 2017 (Proj.): 692
- Consumer price index (avg)
- 2012: 2.9
- 2013: 3.5
- 2014: 2.2
- 2015: (value not listed in table)
- Central Government revenue (Percent of GDP)
- 2012: 45.2
- 2013: 41.3
- 2014: 36.8
- 2015: 25.0
- 2016: 21.4
- 2017 (Proj.): 17.5
- Of which: oil revenue (Percent of GDP)
- 2012: 41.5
- 2013: 37.0
- 2014: 32.2
- 2015: 18.2
- 2016: 12.7
- 2017 (Proj.): 17.5
- Central Government expenditure (Percent of GDP)
- 2012: 33.2
- 2013: 35.5
- 2014: 40.2
- 2015: 40.7
- 2016: 38.6
- 2017 (Proj.): 34.3
- Fiscal balance (deficit -) (Percent of GDP)
- 2012: 12.0
- 2013: 5.8
- 2014: -3.4
- 2015: -15.8
- 2016: -17.2
- 2017 (Proj.): -9.3
- Non-oil primary balance (percent of non-oil GDP)
- 2012: -60.1
- 2013: -59.4
- 2014: -63.6
- 2015: -49.8
- 2016: -44.7
- 2017 (Proj.): -39.6
- Broad money (annual percent change)
- 2012: 13.9
- 2013: 10.9
- 2014: 11.9
- 2015: 2.5
- 2016: 0.8
- Exports (US$ billions)
- 2012: 388.4
- 2013: 375.9
- 2014: 342.5
- 2015: 203.5
- 2016: 182.3
- 2017 (Proj.): 208.2
- Of which: Oil and refined products (US$ billions)
- 2012: 337.2
- 2013: 321.7
- 2014: 284.4
- 2015: 153.0
- 2016: 136.2
- 2017 (Proj.): 158.5
- Imports (US$ billions)
- 2012: -141.8
- 2013: -153.3
- 2014: -158.5
- 2015: -159.3
- 2016: -123.9
- 2017 (Proj.): -127.6
- Current account (US$ billions)
- 2012: 164.8
- 2013: 135.4
- 2014: 73.8
- 2015: -56.7
- 2016: -24.9
- 2017 (Proj.): 1.3
- Current account (percent of GDP)
- 2012: 22.4
- 2013: 18.1
- 2014: 9.8
- 2015: -8.7
- 2016: -3.9
- 2017 (Proj.): (value not listed in table)
- SAMA’s net foreign assets (US$ billions)
- 2012: 647.6
- 2013: 716.7
- 2014: 724.3
- 2015: 608.9
- 2016: 528.6
- 2017 (Proj.): 472.6
- SAMA's net foreign assets (in months of imports of goods and services)
- 2012: 33.8
- 2013: 35.1
- 2014: 37.5
- 2015: 31.7
- 2016: 28.2
- 2017 (Proj.): (value not listed in table)
- Real effective exchange rate (percent change) (Latest 2017 data is for end-May)
- 2012: 3.0
- 2013: 9.4
- 2014: 8.4
- 2015: 4.8
IMF Communications Department — Press Release No. 17/292 (July 21, 2017). Executive Board conclusions and selected indicators as presented by IMF staff.