Higher oil prices should not slow Saudi reform momentum: IMF

Higher oil prices should not slow the reform momentum in Saudi Arabia and the additional revenues could be redirected to rebuild the fiscal buffers, the International Monetary Fund (IMF) said in a Tuesday statement.

On July 16, the IMF’s Executive Board concluded the Article IV Consultation with the Kingdom.

Saudi real GDP growth is projected to rise to 1.9 percent in 2018, while non-oil growth would reach 2.3 percent.

“Growth is expected to pick-up further over the medium-term as the reforms take hold and oil output increases. Risks are balanced in the near-term,” the statement said.

Moreover, the IMF expected the fiscal deficit to keep on narrowing to 4.6 percent of GDP in 2018 and further to 1.7 percent of GDP by 2019, after reaching 9.3 percent of GDP last year.

It pointed that the deficit is likely to continue to be financed by a combination of asset drawdowns and domestic and international borrowing.

The current account balance is expected to achieve surplus of 9.3 percent of GDP in 2018, with the increase in oil export revenues and as long as the remittance outflows are still under control, the statement added.

The Saudi Arabian Monetary Authority’s (SAMA) net foreign assets are also expected to record a hike this year and over the medium-term.

Higher government spending and non-oil growth are expected to strengthen the credit and deposit growth, which are still weak, while bank profitability should grow on the widening of the interest margins.

The exchange rate peg to the U.S. dollar continues to serve Saudi Arabia well given the structure of the Saudi economy, the statement added, citing the IMF Directors.

Directors welcomed the introduction of the VAT, encouraging the Saudi authorities to continue to gradually increase energy prices and anchor fiscal spending in a medium-term expenditure framework.

They highlighted that the privatization and public-private partnerships plans should be accelerated, for being a catalyst for the development of new sectors.

Policies to create job opportunities for the nationals in the private sector should focus on the equalization of opportunities for the Saudis and expatriates, the Directors noted.