Saudi economic reforms ‘yielding positive results,’ says IMF

IMF Managing Director Christine Lagarde sits alongside Ahmed Alkholifey, Governor of the Saudi Arabian Monetary Authority (SAMA), during the G20 Finance Ministers and Central Bank Governors Meeting in Washington, DC. (File/AFP)
Updated 16 May 2019
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Saudi economic reforms ‘yielding positive results,’ says IMF

  • Non-oil sector expected to grow at a faster rate this year
  • Fiscal deficit seen rising to 7 percent of GDP in 2019

LONDON: Economic reforms underway in Saudi Arabia have started to yield “positive results,” the IMF said on Wednesday — although the fund cautioned that challenges, notably the level of government spending, remain.
The International Monetary Fund (IMF) issued its preliminary findings on the Kingdom’s economy following an official staff visit to the country, prior to the preparation of a final report.
It found that reforms under the Vision 2030 program — the ambitious plan to diversify Saudi Arabia’s economy set out three years ago — were paying off. 
“Reforms to the capital markets, legal framework, and business environment are progressing well,” the IMF said. 
“Non-oil growth has picked-up, female labor force participation and employment have increased.”
Other factors the IMF cited include the “successful introduction” of value-added tax (VAT), energy price reforms, and an increase in fiscal transparency.
But several challenges remain, the IMF cautioned. 

“Government spending has risen, supporting growth but raising medium-term fiscal vulnerabilities to lower oil prices. Fiscal consolidation is needed to reduce these vulnerabilities. More generally the economic footprint of the public sector is still large,” it said.
The IMF said unemployment among Saudi nationals remains high.
“To deliver a diversified, productive and competitive economy, reforms need to make Saudi nationals more competitive for private sector jobs, raise foreign direct investment, and increase the availability of finance for young and growing companies,” it said.
The fund said Saudi Arabia’s non-oil sector is expected to grow at a faster rate this year, at 2.9 percent.
Yet the IMF said it expects Saudi Arabia’s fiscal deficit — the difference between government spending and revenues — to rise to 7 percent of GDP in 2019, from 5.9 percent last year.
It urged fiscal consolidation to reduce the impact of “medium-term” vulnerabilities. 
“If oil prices are lower than assumed in the government’s budget plan, the country would face large fiscal deficits unless spending was reduced,” it said.
The fund said the government should consider lowering its wage bill and increasing the VAT rate. 
“A reduction in the government wage bill, a more measured increase in capital spending, and the better targeting of social benefits will all yield fiscal savings. The introduction of the VAT has been very successful, and consideration should be given to raising the rate from 5 percent, which is low by global standards, in consultation with other GCC countries,” it said.


British Steel collapses, threatening thousands of jobs

Updated 22 May 2019
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British Steel collapses, threatening thousands of jobs

LONDON: British Steel Ltd. has been ordered into liquidation as it struggles with industry-wide troubles and Brexit, threatening 5,000 workers and another 20,000 jobs in the supply chain.
The company had asked for a package of support to tackle issues related to Britain’s pending departure from the European Union. Talks with the government failed to secure a bailout, and the Insolvency Service announced the liquidation on Wednesday.
“The immediate priority following my appointment as liquidator of British Steel is to continue safe operation of the site,” said David Chapman, the official receiver, referring to the Scunthorpe plant in northeast England.
The company will continue to trade and supply its customers while Chapman considers options for the business. A team from financial firm EY will work with the receiver and all parties to “secure a solution.”
“To this end they have commenced a sale process to identify a purchaser for the businesses,” EY said in a statement.
The government said it had done all it could for the company, including providing a 120 million pound ($152 million) bridging facility to help meet emission trading compliance costs. Going further would not be lawful as it could be considered illegal state aid, Business Secretary Greg Clark said.
“I have been advised that it would be unlawful to provide a guarantee or loan on the terms of any proposals that the company or any other party has made,” he said.
Unions had called for the government to nationalize the business, but the government demurred.
The opposition Labour Party’s deputy leader, Tom Watson described the news as “devastating.”
“It is testament to the government’s industrial policy vacuum, and the farce of its failed Brexit,” he said in a tweet.
The crisis underscores the anxieties of British manufacturers, who have been demanding clarity around plans for Britain’s departure from the EU. Longstanding issues such as uncompetitive electricity prices also continue to deter investment in UK manufacturing, said Gareth Stace, the director-general of UK Steel, the trade association of the industry.
“Many of our challenges are far from unique to steel — the whole manufacturing sector is crying out for certainty over Brexit,” Stace said. “Unable to decipher the trading relationship the UK will have with its biggest market in just five months’ time, planning and decision making has become nightmarish in its complexity.”
Greybull Capital, which bought British Steel in 2016 for a nominal sum, said turning around the company was always going to be a challenge. It praised the trade union and management team, but said Brexit-related issues proved to be insurmountable.
“We are grateful to all those who supported British Steel on the attempted journey to resurrect this vital part of British industry,” it said in a statement.