Saudi Arabia’s growth is expected to pick up this year and over the medium-term as good progress is being made in implementing the ambitious reform programme, said a top official of the International Monetary Fund (IMF).

The primary challenges for the government are to sustain the implementation of reforms and achieve the fiscal targets it has set, added Tim Callen, division chief in the IMF's Middle East and Central Asia Department.

Callen was making a statement at the conclusion of recent discussions for the 2018 Article IV Consultation with Saudi Arabia.

“Saudi Arabia is making good progress in implementing its ambitious reform programme under Vision 2030. The government remains committed to wide-ranging economic and social reforms to transform the economy away from its traditional reliance on oil and to create a more dynamic private sector that creates jobs for the growing working age population. Growth is expected to pick-up this year and over the medium-term as reforms take hold,” said Callen.

“The primary challenges for the government going forward are to sustain the implementation of the bold structural changes that are underway, meet the medium-term fiscal targets it has set, and resist the temptation to re-expand government spending in line with higher oil prices.

“Targeting a balanced budget in 2023 is appropriate. The government should now focus on delivering on this objective. Limiting the growth of government spending will be necessary to achieve the fiscal targets. Major progress has been made in implementing new revenue initiatives.

The VAT is a milestone achievement in strengthening the tax culture and tax administration of the country. The recent energy price reforms and the introduction of the citizens’ accounts are welcome. Further gradual energy price increases should continue, while the citizens’ accounts should be reviewed periodically to confirm they are adequately compensating low and middle-income households for the higher energy/VAT costs,” he added.

“Reforms to strengthen the budget process and the fiscal framework, increase fiscal transparency, and develop macro-fiscal analysis are making good progress. Broadening the coverage of fiscal data beyond the central government would ensure a more complete assessment of the government’s impact on the economy. A strong asset/liability management framework should also be developed to enable a full evaluation of the impact of decisions being taken on and off-budget on the public sector balance sheet,” Callen noted.

“The respective roles of the public and private sectors in developing the non-oil economy need to be carefully considered. While the public sector can be a catalyst for the development of some new sectors, it is important that it does not crowd-out private sector involvement, nor remain a long-term player in markets where private enterprises can thrive on their own.

“The government is focused on job creation for nationals in the private sector, particularly for youth and women. Policies should focus on sending clear signals about the limited prospects for public employment, easing restrictions on expatriate worker mobility, further strengthening education/training, and continuing to support increased female participation,” Callen said.

“Considerable progress is being made to improve the business climate. Recent efforts have focused on the legal system and business licensing and regulation. The public procurement law that is being updated has a key role to play in strengthening anti-corruption policies. The privatization/PPP programme, which was recently approved, should be accelerated.

“A balance is needed between pursuing financial development and inclusion and financial stability. Increased SME finance, more developed debt markets, and improved financial access especially for women as envisaged under the Financial Sector Development Program will support growth and equality. Reforms should focus on removing structural impediments that may dissuade financial institutions from entering these markets.

“The exchange rate peg to the US dollar continues to serve Saudi Arabia well given the structure of the economy.

“While progress has been made in increasing data availability, more needs to be done to ensure that an accurate and timely assessment of economic developments is possible,” Callen concluded. – TradeArabia News Service