Time to start reforms
Highlighting the strength of the Saudi economy, the International Monetary Fund (IMF) in its press release last week described it as one of the best performing economies of the G20 in recent years. Its average real GDP growth during the 2008-2012 period places the Kingdom third behind China and India in terms of economic growth, the report stated.
Moreover, the IMF expects the Kingdom’s nonoil private sector to register a healthy growth of 7.6 percent this year.
This made the report to predict a positive outlook for the Saudi economy.
This is despite the fact that growth is expected to slow down this year compared to the previous two years because of developments in the oil market and the tendency to trim production to accommodate the slacking demand.
The IMF seems to be concerned about the impact on the the Saudi economy and also on the world economy at large.
This is especially so because it had described the Kingdom as one of the best performing economies within the G20.
This was done as the Kingdom is playing the pivotal role of supporting the oil market ensuring that there are enough supplies all through, even during periods of fluctuating demand.
That has been demonstrated once again and was the key element in helping world economy, especially during its peak financial crises.
The second factor is the financial aid the Kingdom has been giving to other countries or contributions to international organizations like the IMF that enabled it carry out growing bail out plans.
This has been demonstrated lately following the euro zone crisis that is still unfolding in one way or the other.
And the third aspect is the indirect contribution to stability of many developing world economies through remittances sent by expatriates working in Saudi Arabia to their home countries. Figures vary, but they run into billions of dollars annually.
However, despite this rosy picture, the IMF report warns that some areas need attention like the possibility of inflation, which has started increasing since the middle of last year as an outcome of the higher oil prices that led to higher government spending. Despite that it expects inflation to be contained within the 4 percent rate. And that needs a vigilant follow-up to the extent of slowing down some aspects of public spending.
Another area the IMF report touched on relates to the growing population, which eventually results on pressure to provide job opportunities to increasing numbers of young and well educated Saudis. This means emphasizing the all-important two factors — education and training — to improve the abilities of potential job seekers and enable the government reduce reliance on the public sector to be the main job provider, as well as improve the private sector’s competitiveness so as to be more efficient as commodity and service provider in a globally hot environment.
It is interesting to note what the IMF report highlighted: “The fiscal position is very strong. In recent years, the government has run large budget surpluses, reduced debt to a very low level, and built up considerable financial assets. Budget management has been considerably strengthened. From this position of strength, now is a good time to consider further fiscal reforms. In this context, we encourage the government to further develop fiscal tools, including those dealing with oil price uncertainty.”
It was more or less what this column said just before the IMF report came out, and specifically on May 12 when it said, “moreover, the best time to engage in such a policy is when economic conditions are stable and people have enough margin to bear additional cost. The basic figures of the Saudi economy continue to be solid despite slowing down.”
Two figures here worth mentioning again related to the per capita income, which is slated to top $ 24,926 this year and may drop slightly to $ 24,916, still regarded to be high. Add to that the remarkable improvement in slashing the national debt to around 3.6 percent of the GDP and some even expect that healthy rate to drop this year and the next probably.
That op-ed piece was commenting on a Euromoney conference that hosted senior government officials who spoke about the need to tackle subsidies.
Their line of argument falls within what the IMF later recommended that tackling subsidies especially in fuel area need to be over time, in a phased format and clearly communicated to the public to ensure that the message get through with the desired impact.
Timing is of essence and any decision can achieve its goal if it is carried out in the proper time. Equally plans can go astray if not carried out in the time required. And that is why it is important to go ahead with intended reforms given the consensus of views internally and domestically. Now is the time.
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