In its annual report on the Saudi economy, the IMF praised the progress made by the Saudi government in achieving economic and social reforms, including the introduction of VAT and energy price reform.
The IMF’s praise of progress in implementing the Saudi government’s economic program came within the framework of Vision 2020-2030, with recommendations for continued reforms and prudent economic and financial policies.
The IMF published its report on reviewing the Saudi economic performance, which was conducted last July. The report came with positive expectations for most of the main economic indicators supported by the economic reforms implemented by the Saudi government.
Despite CPI (Consumer Price Index) inflation having increased in recent months – with the introduction of the VAT and higher gasoline and electricity prices, with a forecast at 3% this year – the IMF’s report predicts inflation to stabilize at around 2% over the medium term. The fiscal deficit is projected to continue to narrow, from 9.3% of GDP in 2017 to 4.6% of GDP in 2018 and then further to 1.7 & of GDP next year. While the budget deficit is expected to decline to 5.1% in 2020, down from 6.5% in 2019.
In terms of growth, the IMF expected GDP growth to rise to 3% in 2020, after a limited decline this year to 1.9%.
In terms of revenues, the IMF forecast the revenues to reach 33.2% of GDP this year and next, up from 30.9% in 2018.
IMF has advised Saudi Arabia to consider raising its VAT to 10% from its current 5%, improving its fiscal position amid falling oil prices.
The report also reviewed economic reforms aimed at revitalizing the private sector, which included reforming legal frameworks related to the business environment and industrial policies as well as reforms of financial markets, which led to the revival of the non-oil economy, which is expected to grow by 2.9% this year.
The Fund also praised fiscal reforms including the introduction of VAT and energy price reform.
In its report, the IMF clearly pointed to reforms that are beginning to bear fruit, but at the same time it noted that volatile global oil prices and risks to the global economy will continue to represent sources of risk for the Saudi economy.