Brighter Saudi economic outlook boosted by reforms, says IMF

A number of big infrastructure projects such as Jeddah’s new $7.2 billion King Abdulaziz International Airport are expected to bolster economic expansion. (Instagram)
Updated 23 May 2018
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Brighter Saudi economic outlook boosted by reforms, says IMF

  • An IMF team reported that growth was expected to pick up this year and over the medium-term “as reforms take hold.” 
  • Saudi Finance Minister Mohammed bin Abdullah Al-Jadaan: The statement “confirms the progress made by the Kingdom’s government in implementing economic and structural reforms.”

LONDON: Saudi Arabia’s “ambitious” reform program is set to accelerate the Kingdom’s economic growth this year, according to the International Monetary Fund (IMF).
Following discussions with Saudi officials, an IMF team led by Tim Callen reported that growth was expected to pick up this year and over the medium-term “as reforms take hold.” 

It 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.”

The report said considerable progress was being made to improve the business climate. Recent efforts had focused on the legal system and business licensing and regulation. The public procurement law that is being updated had a key role to play in strengthening anti-corruption policies, said the IMF.
Saudi Finance Minister Mohammed bin Abdullah Al-Jadaan said that the statement “confirms the progress made by the Kingdom’s government in implementing economic and structural reforms.”
Jean Michel Saliba, Middle East economist at Bank of America Merrill Lynch, expressed some concern that higher oil prices could encourage the government to take its foot off the fiscal prudence accelerator.

 

He said: “The IMF report is in line with our views that, while oil prices allow the Saudi government to support a pick-up in economic activity while minimizing the impact on fiscal balances, the key risk that higher oil prices bring is that medium-term (spending targets) are not adhered to.”
However, the IMF identified several encouraging KSA initiatives. The introduction of value-added tax was said to be a “milestone achievement” in strengthening the tax culture and tax administration of the country. Energy price reforms and the introduction of citizens’ accounts to compensate the less well-off for higher energy/VAT costs were also welcomed.
The IMF said that the Kingdom’s privatization and public and private partnership program, recently approved, should be accelerated.
It said: “A balance is needed between pursuing financial development and inclusion and financial stability. Increased finance for smaller businesses, more developed debt markets and improved financial access especially for women as envisaged under the Financial Sector Development Program will support growth and equality.”
Targeting a balanced budget in 2023 was lauded as being “appropriate,” and the Saudi government was advised to focus on delivering on this objective. “Limiting the growth of government spending would be necessary to achieve fiscal targets,” said the IMF.
Reforms to strengthen the budget process and the fiscal framework, increase fiscal transparency, and develop macro-fiscal analysis were said to be making good progress.
But broadening the coverage of fiscal data beyond the central government would ensure a more complete assessment of the government’s impact on the economy.
“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 IMF said.

More needs to be done to ensure that an accurate and timely assessment of economic developments is possible.

IMF

The IMF recommended that government 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. While progress had been made in increasing data availability, “more needs to be done to ensure that an accurate and timely assessment of economic developments is possible.” 

Earlier this month, the ministry of finance published first quarter fiscal indicators that showed the Kingdom — which is making concerted efforts to diversify its oil-reliant economy — has projected a deficit of SR195 billion ($52 billion), or 7.3 percent of gross domestic product (GDP), this year, down from SR230 billion last year. It plans to balance the budget by 2023.
First-quarter revenues reached SR166.3 billion, up 15 percent from the same period last year, the ministry said in a statement.
Non-oil revenues jumped 63 percent to SR52.3 billion, partly due to a 5 percent value-added tax (VAT) that the government introduced in January.
Oil revenues rose 2 percent but the low figure was a result of a change in the way dividends are distributed and a stronger number is expected in the second quarter.
The IMF expects Saudi economic growth to hit 1.7 percent in 2018 after falling into negative territory last year.
A number of big-ticket infrastructure projects such as Jeddah’s new $7.2 billion King Abdulaziz International Airport are expected to bolster economic expansion.
In global energy markets, with crude trading at close to $80 per barrel, leading investment banks have forecast prices could go higher.
Supplies are being squeezed by the collapse of production from OPEC member Venezuela as well as worries about Iranian supplies following President Donald Trump’s decision to reimpose sanctions on Iran.

FASTFACTS

The IMF expects Saudi economic growth to hit 1.7 percent in 2018 after falling into negative territory last year.


Davos 2019: Mideast CEOs turn gloomy on global economy, PwC study finds

Political and business leaders are gathering in the mountain resort of Davos in Switzerland this week. (AP)
Updated 7 min 19 sec ago
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Davos 2019: Mideast CEOs turn gloomy on global economy, PwC study finds

  • The loss of confidence from regional CEOs was the second biggest fall in the world, beaten only by North American bosses, whose optimism fell from 63 percent to 37 percent

DAVOS: Chief executives in the Middle East are much less confident on prospects for the global economy than they were in 2018, according to a report from accounting and consulting group PwC.

The firm’s annual survey of top bosses’ attitudes, traditionally launched on the eve of the World Economic Forum Annual Meeting in Davos, showed a big drop in the number of CEOs from the region who believe global economic growth will improve in the next 12 months.

Only 28 percent of Middle East business leaders now see an improvement in economic prospects, compared with 52 percent this time last year. Bob Moritz, global chairman of PwC, said: “The prevailing sentiment this year is one of caution in the face of increasing uncertainty.”

The loss of confidence from regional CEOs was the second biggest fall in the world, beaten only by North American bosses, whose optimism fell from 63 percent to 37 percent.

PwC said that the Middle East decline was due to “increased regional economic uncertainty,” while the North American fall was “likely due to the fading of fiscal stimulus and emerging trade tensions.”

The results of the PwC poll - conducted among 1,300 business leaders around the world - reflected an overall decline in business confidence in each region surveyed. Last year, only 5 percent of CEOs said that global economic growth would decline. For 2019, this has jumped to nearly 30 percent.

Globally, confidence in CEOs’ own companies to grow revenue this year has also fallen sharply. Moritz said: “With the rise in trade tension and protectionism it stands to reason that confidence is waning.”

The US retains its lead as the top market for growth among international investors, but many CEOs are turning to other markets, or investing at home. The ongoing trade conflict between the US and China has resulted in a sharp decline in the number of Chinese bosses chosing the US as a market for growth, down from 59 percent last year to only 17 percent for 2019.

Globally, CEOs are still more worried about the threat of over-regulation of their businesses - named as the top concern again in 2019 - but uncertainty about policy has become a major issue too.

In the Middle East, the main concern is geopolitical uncertainty, followed by the threat of cyberattack, policy uncertainty and the speed of technological change.