WASHINGTON, 7 December 2005 — Saudi Arabia, enjoying a jump in oil revenues this year, will see strong economic growth in 2005 with a massive external surplus, the International Monetary Fund said on Monday.
In an annual review, an exercise the IMF undertakes with each member country, the global economic watchdog said Saudi Arabia should see its gross domestic product rise over 6 percent this year amid record high oil prices.
The world’s biggest oil producer should see its current account surplus widen to 30 percent of GDP this year while its fiscal surplus hits 15.5 percent of GDP as a result of windfall export revenues, the IMF said.
The fund commended Saudi authorities “for their prudent macroeconomic management, the effective use of oil revenues to invigorate the development of the private sector and the economy’s impressive performance.”
Flush with cash, Saudi Arabia now faces challenges in how to manage the windfall without derailing reforms that the IMF said has helped non-oil sector growth, created job opportunities for Saudis and improved the country’s resistance to oil shocks. “The favorable fiscal outlook offers both opportunities and challenges over the medium term,” the Washington-based lender said, encouraging Saudi Arabia to establish and deposit surplus money into investment funds for future needs.
In the review, the IMF praised Saudi Arabia for playing “a constructive role in support of oil market stability,” and expressed support for the country’s plans to expand oil production and refining activity if global demand stays strong.
However, the fund also warned the country that banking authorities “need to be cautious in light of the continuing strong increase in stock prices,” and said more oversight was needed in equity-related and consumer lending.
The Saudi financial system would also benefit from increased liberalization as it attempts to meet the needs of big private sector investment projects, the IMF said. “Development of primary and secondary markets in corporate bonds will be critical in meeting this medium-term challenge,” it said. The IMF concluded that Saudi monetary policy, combined with an exchange rate peg, had contributed a “remarkable degree of price stability.”
Saudi Arabia’s accession to the World Trade Organization would help draw more private sector investment to the country and prompt even greater economic resilience in the case of future oil price fluctuations, it said.
