IMF Projects 2.9 Percent Non-Oil Growth in Saudi Arabia

Published September 11th, 2019 - 06:24 GMT
The report pointed out that the structural reforms undertaken by the government.
The report pointed out that the structural reforms undertaken by the government. (Shutterstock)

Saudi non-oil growth is expected to continue recovering in 2019, accelerating to 2.9 percent this year, revealed a report by the International Monetary Fund (IMF).

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The 2019 Article IV Consultation report for Saudi Arabia commended the kingdom's progress made in implementing its reform program that aimed at supporting the diversification of the economy, inclusive growth, and job creation.

It confirmed that the kingdom is continuing the implementation of reforms that seek to strengthen the legal framework and improve business climate.

Saudi Minister of Finance Mohammed al-Jadaan said: "The IMF report reaffirms the significant progress made by the Kingdom as a result of implementing many structural reforms planned in accordance with Saudi Vision 2030, especially the reforms regarding combating corruption, money laundering, and the financing of terrorism.

"Most of the recommendations laid out in the 2019 Article IV Consultation report are in line with the measures taken by the government that would achieve fiscal sustainability according to best practices, including the continuous progress in reforms to improve the efficiency of public financial management, and work to achieve financial stability and spur economic growth."

The report pointed out that the structural reforms undertaken by the government include: financial markets, foreign investment, legal framework, ease of doing business, and SMEs. It believed that maintaining the exchange rate peg to the US dollar is still the best option for the Kingdom, given the structure of its economy.

The report also predicted that the growth rate of the non-oil sector will continue to improve over the medium term to reach 3 percent to 3.2 percent over the coming years as economic reforms continue to be implemented.

The unemployment rate also dropped to 12.5 percent during Q1 of 2019, and credit growth improved amid lending growth recovery for the construction and manufacturing sectors. Also, banks are in good condition besides real estate lending.

The report also acknowledged the increase of reserves at the Saudi Arabian Monetary Authority (SAMA), which ranks high using the IMF’s assessment of reserve adequacy metric. In addition, the report expected a decrease in the non-exported oil primary deficit.

The report confirmed that the Vision Realization Programs of the Saudi Vision 2030 have moved from the design stage to the implementation stage. The economic and social reforms that support growth and employment of citizens are beginning to have a positive impact on the economy, according to the report.

The IMF's report commended the progress made through the reforms that contributed to strengthening the general fiscal framework, risk analysis and process of budget preparation, as well as establishing a medium-term general fiscal framework and developing an online expenditure management system (Etimad).

In addition to achieving the rapid progress in financial market reforms and the domestic debt market, the report noted that these reforms culminated in the inclusion of the kingdom in the international equities and bonds markets indexes this year.

It also valued the ongoing measures to improve the governance and the anti-corruption framework, strengthen the AML/CFT framework and stressed the importance of continuing reforms in these areas. At the same time, the report called for more effort to achieve greater fiscal control to reduce risks in the medium term.

The report confirmed that the government has implemented many of the recommendations outlined in the 2018 report of Article IV consultation and the 2017 Financial Sector Stability Assessment Report.

It mentioned that the implemented recommendations included the continuous reforms to develop non-oil revenues and increasing the volume of bank lending for SMEs.

The report considered that there was a need to continue fiscal consolidation efforts, setting additional fiscal measures and improving expenditure management to rebuild the fiscal buffers and limit risks in the medium term.

However, it praised the achieved improvement in the quality of economic data, as well as the Council of Ministers approval of the new Government Tenders and Procurement Law.

The report lauded the efforts made to increase opportunities to obtain financial services under the Financial Sector Development Program.

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