IMF gives strong assessment of KSA economic reforms
The executive board of the International Monetary Fund (IMF) has commended the Saudi authorities for the progress in implementing their economic and social reform agenda, including the introduction of the value-added tax and energy price reforms.
In their assessment report completed on July 10, the executive board affirmed that reforms taken by the Saudi government have started to yield positive results and that the outlook for the economy is positive.
The board emphasized the importance of the Kingdom’s commitment to prudent macroeconomic policies and appropriate prioritization of reforms, which will lead to promoting non-oil growth, creating jobs for nationals, and achieving the objectives of Vision 2030 reform plan.
It has underscored the importance of fiscal consolidation, key to rebuilding fiscal buffers and reducing medium-term fiscal vulnerabilities. It also encouraged the Saudi authorities to build on their fiscal reforms by continuing with planned energy and water price adjustments and increases in expatriate labor fees.
It encouraged the Saudi government to continue its efforts in connection with improving expenditure management and strengthening the country’s fiscal framework, noting that, despite the important reforms, spending has increased. The board welcomed reforms to strengthen public procurement, which will help to improve the efficiency of government spending and reduce the risks of corruption.
The IMF, however, considered that publishing more detailed budgets and spending execution data would enhance fiscal transparency, and viewed a robust asset-liability management framework as essential to guide analysis of the public sector balance sheet, cash flows and risk versus return trade-offs.
The statement issued by the board welcomed the ambitious reforms taken by the Saudi government in connection with developing the non-oil economy by strengthening the business environment and implementing effective industrial policies that could encourage the development of new sectors of the economy.
It said that the policies taken by the government to develop new economic sectors would be successful if Saudi workers posses the necessary skills for the labor market. Therefore, wages and productivity must be well aligned and labor market policies should focus on setting clear expectations by strengthening education and training and increasing female employment.
The board welcomed the review of social assistance programs to ensure they provide adequate support to those in need and are well-targeted. They also welcomed the continued resilience of the financial sector and ongoing capital market reforms.
Lastly, the board commended Saudi Arabia’s ongoing strengthening of the AML/CFT framework and its recent membership of the Financial Action Task Force.
The IMF Executive Board Assessment (2) of the Saudi government economic, financial and social reforms is fair, especially when it is linked to the expected positive result of the national economy stated in the statement released by the IMF mission last May upon conducting the 2019 Article IV (1) consultations.
Talat Zaki Hafiz is an economist and financial analyst.