Saudi Arabia's real non-oil growth is expected to strengthen to 2.9 per cent in 2019 as government spending and confidence increase, but real GDP growth is projected to slow to 1.9 per cent as real oil growth slows to 0.7 per cent with the implementation of the OPEC+ agreement, according to International Monetary Fund (IMF).
The growth is expected to pick-up over the medium-term as ongoing reforms take hold. The unemployment rate among Saudi nationals has moved down but remains high at 12.5 per cent, stated the global monetary body after concluding the Article IV Consultation1 with Saudi Arabia.
Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies.
On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
The IMF officials projected that the fiscal deficit was likely to widen to 6.5 per cent of GDP in 2019 from 5.9 per cent of GDP last year owing to high spending which would exceed the budgeted amount and offset an increase in non-oil revenues.
The deficit is then projected to decline to 5.1 per cent of GDP in 2020. With oil prices implied by futures markets declining over the medium-term, the deficit is then projected to widen.
The current account surplus is projected to narrow to 6.9 per cent of GDP in 2019 from 9.2 per cent of GDP in 2018 as oil export revenues moderates and import growth picks up, said the officials.
CPI inflation has declined in recent months, mainly due to falling rents, and is forecast to decline by 1.1 per cent in 2019, before turning positive in 2020 as further energy price increases are implemented, they stated.
Saudi officials said credit growth was expected to strengthen with the stronger non-oil economy and bank liquidity comfortable.
They said that the kingdom was implementing the IMF reform agenda. The fiscal reforms included
lowering the registration threshold for the value-added tax (VAT), adjusting gasoline prices on a quarterly basis, and increasing fiscal transparency, stated the officials.
Reforms to the capital markets, legal framework, business environment, and SME sector are ongoing, they added.
IMF Executive Directors agreed with the thrust of the staff appraisal. They commended the Saudi authorities for the progress in implementing their economic and social reform agenda, including the
introduction of the value-added tax and energy price reforms.