Riyadh adjusting to effects of lower oil prices

IMF says Saudi Arabia’s consolidation efforts beginning to bear fruit

Saudi Arabia’s progress with reforms to improve the business environment are gaining momentum, and a framework to increase the transparency and accountability of government is largely in place, according to the International Monetary Fund (IMF).

“Effective prioritisation, sequencing and coordination of the reforms is essential, and they need to be well-communicated and equitable to gain social buy-in and ensure their success,” Timothy Callen, Mission Chief for Saudi Arabia, IMF, said in an online press briefing. Government efforts to increase the participation of women in the economy, particularly the recent decision to allow women to drive will have a positive impact on Saudi Arabia’s economy, said Timothy Callen, Mission Chief for Saudi Arabia, IMF.

Encouraging more female employment will have a positive economic impact. Ongoing efforts to broaden transportation options and childcare facilities and encourage teleworking are welcome. Female entrepreneurs could be supported through dedicated programmes under the SME (small and medium enterprise) initiatives.

The IMF noted that the Saudi economy is adjusting to the effects of lower oil prices and fiscal consolidation, but that non-oil growth is expected to pick up this year and overall growth is expected to strengthen over the medium term as structural reforms are implemented.

The fund, however, cautioned that backloading adjustment could incur risks. In this regard, the Fund welcomed the authorities’ intention to carefully monitor the impact of consolidation and reform and make corrections if needed.

Directors commended the authorities’ efforts to enhance nonoil revenue. In this context, they emphasised the importance of establishing an effective and efficient tax system.

They noted the recent implementation of an excise tax on tobacco and carbonated/ energy drinks, and welcomed the authorities’ commitment to introduce the VAT (value added tax) at the beginning of 2018, although a few noted that the timetable could be challenging. Directors recommended keeping exemptions and zero-rated items to a minimum.

The IMF welcomed the authorities’ plan for further energy price reforms. They emphasised the importance of ensuring that the reforms are equitable, and supported the planned household allowance to cushion the impact of the price increases on low- and middle-income households. A number of Directors saw scope for a more gradual phasing of the price increases to allow households and businesses more time to adjust.

The fiscal balance programme and the 2017 budget set out an ambitious fiscal consolidation plan.