Tackling unemployment among young Saudis will be one of the toughest challenges faced by the region's largest economy this year, according to an IMF official.
“For nationals unemployment is already high at around 12 per cent and the young population is still growing,” said Timothy Callen, the assistant director for the Middle East and Central Asia department at the IMF.
“The public sector has in the past been a very important source of employment for nationals but with fiscal adjustment, the opportunities for public sector employment will be much less going forward.”
He was speaking a day after the IMF published an update to its World Economic Outlook in which it downgraded its growth forecast for the kingdom to 0.4 per cent from its October prediction of 2 per cent. The main reason for that downgrade was the recently agreed oil production cuts among both Opec and non-Opec oil producers.
Despite the projected slowdown in overall economic growth in the kingdom, the IMF expects a pick up in the non-oil economy as confidence improves.
“We are expecting a pick up in non-oil growth – somewhere around 2 per cent which, while better than 2016, still needs more to sustain employment,” said Mr Callen.
“One big focus needs to be education and training where the government is already doing a lot of work.”
He said he expected the fiscal deficit in the kingdom this year to be less than 10 per cent of GDP.
Saudi Arabia is seeking to reduce its dependence on oil by investing in industries from renewable energy to manufacturing. It plans to borrow as much as US$15 billion this year on international debt markets to help to fund its spending plans, following last year’s $17.5bn sovereign bond sale.
Saudi Arabia’s Vision 2030 strategy is being driven by deputy crown prince Mohammed bin Salman and includes a plan to set up the world’s biggest sovereign wealth fund and to sell part of Saudi Aramco. The government has also raised the cost of fuel and plans to introduce new value added taxes and fees on expatriate employees.
Despite the projected slowdown in growth in the region’s largest economy, analysts do not anticipate a spillover effect in neighbouring countries.
“The economy of Saudi Arabia has been slowing down since 2016 hence the revised downward forecasts are not a surprise,” said John Sfakianakis, the director of economic research at Riyadh-based Gulf Research Centre. “Headline GDP for 2017 will be impacted by the oil sector which impacts real GDP. Real GDP in 2016 remained elevated due to the oil sector. The impact for the rest of the Gulf economies will be a bit of the same this year as 2016. I don’t see a significant negative impact above and beyond what we have seen in 2016.”
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