Saudi Arabia’s real GDP growth is expected to increase to 1.9 per cent in 2018, with non-oil growth strengthening to 2.3 per cent as reforms take hold and oil output increases, said the International Monetary Fund (IMF) in a new report.

The report summarises the views of the Executive Board as expressed during IMF’s July 16, 2018 consideration of the staff report that concluded the Article IV consultation with Saudi Arabia.

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 employment of Saudi nationals has increased, especially for women, but the unemployment rate among Saudi nationals rose to 12.8 per cent in 2017.

CPI 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 per cent in 2018, before it stabilizes at around 2 per cent over the medium-term. The fiscal deficit is projected to continue to narrow, from 9.3 per cent of GDP in 2017 to 4.6 per cent of GDP in 2018 and then further to 1.7 per cent of GDP in 2019.

With oil prices implied by futures markets declining over the medium-term, the deficit is then projected to widen. 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 per cent 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 expected to increase this year and over the medium-term.

Credit and deposit growth remain weak, but both are expected to strengthen due to higher government spending and non-oil growth. Bank profitability should increase as interest margins widen, and banks remain well capitalized and liquid.

The 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. – TradeArabia News Service