IMF says Saudi growth is expected to pick up further over the medium-term as economic reforms take hold and oil output increases
Real GDP growth in Saudi Arabia is expected to increase to 1.9 percent in 2018, with non-oil growth strengthening to 2.3 percent, according to a new report by the International Monetary Fund (IMF).
The report by the executive board of the IMF said growth is expected to pick up further over the medium-term as economic reforms - part of the Saudi Vision 2030 strategy - take hold and oil output increases.
It added that the employment of Saudi nationals has increased, especially for women, but the unemployment rate among Saudis rose to 12.8 percent in 2017.
The IMF also said that inflation has increased in recent months with the introduction of the value-added tax (VAT) and higher gasoline and electricity prices, and is forecast at 3 percent in 2018, before it stabilizes at around 2 percent over the medium-term.
The fiscal deficit is projected to continue to narrow, from 9.3 percent of GDP in 2017 to 4.6 percent of GDP in 2018 and then further to 1.7 percent of GDP in 2019. The deficit is expected to continue to be financed by a combination of asset drawdowns and domestic and international borrowing.
The current account balance is expected to be in a surplus of 9.3 percent of GDP in 2018 as oil export revenues increase and remittance outflows remain subdued. The Saudi Arabian Monetary Authority’s (SAMA) net foreign assets are also expected to increase this year and over the medium-term, the IMF said.
Its report added: "Authorities are continuing with their fiscal reforms including through the introduction of the value-added tax and further energy price increases at the beginning of 2018. Reforms are also ongoing to improve the business environment, develop a more vibrant small and medium enterprises (SME) sector, deepen the capital markets, increase the involvement of women in the economy, and develop new industries with high potential for growth and job creation."
Executive directors commended the authorities for the progress made in implementing their reform agenda and agreed that continued commitment to implementing wide-ranging reforms will help achieve the fiscal objectives and promote non-oil growth.
Directors also welcomed new revenue measures, particularly the introduction of the VAT and encouraged the authorities to continue their preparations to lower the VAT registration threshold in 2019.
The IMF also hailed progress in implementing structural reforms, and called for the public-private partnerships plan to be accelerated.
Regarding jobs in the kingdom, IMF directors believed that reforming the visa system for expatriate workers, strengthening education and training, and addressing remaining constraints to female employment would be key.
They also agreed that the exchange rate peg to the US dollar continues to serve Saudi Arabia well given the structure of the Saudi economy.