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
0

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.


UK core pay growth strongest in nearly 11 years, but jobs growth slows

Data showed the unemployment rate remained at 3.8 percent as expected. (Shutterstock)
Updated 16 July 2019
0

UK core pay growth strongest in nearly 11 years, but jobs growth slows

  • Core earnings have increased by 3.6 percent annually, beating the median forecast of 3.5 percent
  • The unemployment rate fell by 51,000 to just under 1.3 million

LONDON: British wages, excluding bonuses, rose at their fastest pace in more than a decade in the three months to May, official data showed, but there were some signs that the labor market might be weakening. Core earnings rose by an annual 3.6 percent, beating the median forecast of 3.5 percent in a Reuters poll of economists. Including bonuses, pay growth also picked up to 3.4 percent from 3.2 percent, stronger than the 3.1 percent forecast in the poll. Britain’s labor market has been a silver lining for the economy since the Brexit vote in June 2016, something many economists attribute to employers preferring to hire workers that they can later lay off over making longer-term commitments to investment. The pick-up in pay has been noted by the Bank of England which says it might need to raise interest rates in response, assuming Britain can avoid a no-deal Brexit. Tuesday’s data showed the unemployment rate remained at 3.8 percent as expected, its joint-lowest since the three months to January 1975. The number of people out of work fell by 51,000 to just under 1.3 million. But the growth in employment slowed to 28,000, the weakest increase since the three months to August last year and vacancies fell to their lowest level in more than a year. Some recent surveys of companies have suggested employers are turning more cautious about hiring as Britain approaches its new Brexit deadline of Oct. 31. Both the contenders to be prime minister say they would leave the EU without a transition deal if necessary. A survey published last week showed that companies were more worried about Brexit than at any time since the decision to leave the European Union and they planned to reduce investment and hiring. “The labor market continues to be strong,” ONS statistician Matt Hughes said. “Regular pay is growing at its fastest rate for nearly 11 years in cash terms and its quickest for over three years after taking account of inflation.” The BoE said in May it expected wage growth of 3 percent at the end of this year.