Saudi Arabia is making "good progress" in implementing reforms in line with its Vision 2030 initiative which will help spur economic growth, the International Monetary Fund said.
"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," the IMF’s mission chief for the kingdom Tim Callen said in a statement. "Growth is expected to pick-up this year and over the medium-term as reforms take hold."
Saudi Arabia’s gross domestic product (GDP) is expected rise to 1.7 per cent from a contraction of 0.7 per cent in 2017. The economy will accelerate further in 2019 to 1.9 per cent as oil output increases, the Washington-based lender said in a report in April. Vision 2030 aims to lower Saudi Arabia’s dependency on oil by creating new revenue streams – such as through the country’s new value added tax (VAT) that came into force this year –developing the private sector, widening its manufacturing industry and opening up capital markets to foreign investors.
Considerable progress has been made in improving the business climate, including changes to the legal system, business licensing and regulation. The public procurement law currently being updated has a key role to play in strengthening anti-corruption policies, while the privatisation and PPP (public-private-partnerships) agenda should be accelerated, Mr Callen added.
Progress has been made in implementing VAT and strengthening tax administration, while recent energy price reforms have been helpful and should be continued. The kingdom should keep enacting its “bold” Vision 2030 reforms despite rising oil prices that may deem economic diversification less critical in the short term, he added.
“The primary challenges for the government are to sustain the implementation of reforms, achieve the fiscal targets it has set, and resist the temptation to re-expand government spending in line with higher oil prices,” Mr Callen said.
Oil prices have rebounded to nearly $80 a barrel after remaining low for the past three years and plummeting to below $30 a barrel.
Overall, Saudi Arabia should target a balanced budget by 2023 by limiting the growth of government spending to achieve fiscal targets. “Reforms to strengthen the budget process and the fiscal framework, increase fiscal transparency, and develop macro-fiscal analysis are making good progress,” Mr Callen said.
Job creation policies should focus on “sending clear signals about the limited prospects for public employment, easing restrictions on expatriate worker mobility, further strengthening education and training, and continuing to support increased female participation,” according to the statement.
The kingdom should strike a balance between pursuing financial development, and financial stability and inclusion, with increased SME finance, more developed debt markets and improved financial access especially for women.
“The exchange rate peg to the U.S. dollar continues to serve Saudi Arabia well given the structure of the economy,” the statement added.