IMF’s fair assessment of Saudi economic reforms
During a recent visit to Saudi Arabia, a team of experts from the International Monetary Fund (IMF) issued a statement praising the economic reforms in the Kingdom.
The statement was part of what is known to be Article IV
The statement issued was part of what is known to be Article IV consultation that was conducted during May 2 to 14. The IMF experts issued the positive statement based on the following findings:
*Growth of the Saudi economy is expected to pick-up this year and over the medium term as reforms take hold.
*A good progress is being made with regard to the implementation of the ambitious reforms program.
*The introduction of the value-added tax is a milestone achievement in strengthening the tax culture and tax administration of the country.
*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.
Based on these findings, the IMF estimated Kingdom’s economy to grow by 1.9 percent this year from the previous estimate of 1.7 percent and also weaning the economy off its dependence on oil and making the private sector more dynamic, which will help in creating more jobs for the growing working-age population.
The IMF, however, also highlighted the challenges the Kingdom may face in the implementation of its reforms.
The experts identified the following challenges:
* To sustain the implementation of the bold structural changes those are underway.
*Meet the medium-term fiscal targets it has set.
*Resist the temptation to re-expand government spending in line with higher oil prices.
* The respective roles of the public and private sectors in developing the non-oil economy need to be carefully considered.
*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.
*A strong asset/liability management framework should also be developed to enable a full evaluation of the impact of decisions being taken on and off-budget on the public sector balance sheet.
* While progress has been made in increasing data availability, more needs to be done to ensure that an accurate and timely assessment of economic developments is possible.
*While the government is targeting a balanced budget in 2023, it should now focus on delivering on this objective by limiting the growth of government spending, which will be necessary to achieve the fiscal targets.
Commenting on the IMF statement, Saudi Finance Minister Mohammed Al-Jadaan said: “The statement assures that the Kingdom has made significant progress in implementing economic and structural reforms, particularly in the light of the positive results of the first quarterly report of the performance of the general budget for the year 2018.”
Al-Jadaan also pointed out that efforts are being made to achieve the strategic objectives of Saudi Vision 2030 and address the challenges.
I believe that the IMF statement has fairly addressed the strong economic reforms that are taking place in Saudi Arabia since the unveiling of the Vision 2030 plan in April 2016.
The statement also addressed fairly the challenges that the Kingdom might face in connection with the implementation of these reforms.
Finally, it has addressed the ways to work around the challenges in order to mitigate any potential negative effect on the economy.
Talat Zaki Hafiz is an economic and financial analyst.