Saudi Arabia’s non-oil sector is poised to strengthen

Saudi Arabia’s non-oil sector is poised to strengthen

Saudi growth to pick up in medium term

August 2018

Saudi Arabia’s Real GDP growth is expected to increase to 1.9 percent in 2018, with non-oil growth strengthening to 2.3 percent, said an IMF statement.

Growth is expected to pick up further over the medium-term as the reforms take hold and oil output increases and risks are balanced in the near-term, it said following the IMF executive board’s consultations with Saudi Arabia. 

The fiscal deficit is projected to continue to narrow, from 9.3 percent of GDP in 2017 to 4.6 percent of GDP in 2018 and then further to 1.7 percent 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, it said.

The employment of Saudi nationals has increased, especially for women, but the unemployment rate among Saudi nationals also rose to 12.8 percent 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 percent in 2018, before it stabilises at around 2 percent over the medium-term. The current account balance is expected to be in a surplus of 9.3 percent 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.

 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.

 The IMF executive directors commended the authorities for the progress made in implementing their reform agenda. They welcomed the broadly positive outlook and emphasised that higher oil prices should not slow the reform momentum.

 They agreed that continued commitment to implementing wide-ranging reforms will help achieve the fiscal objectives and promote non-oil growth. Directors welcomed the ongoing fiscal consolidation efforts and agreed that aiming for a balanced budget by 2023 is appropriate. They emphasised the importance of fully implementing the revenue reforms.

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