RIYADH – The economic outlook for Saudi Arabia is impressive, according to the latest IMF report.
Real GDP growth in Saudi Arabia is expected to increase to 1.9 per cent this year, with non-oil growth strengthening to 2.3 per cent. The pace of growth “is expected to pick up further over the medium term as the reforms take hold and oil output increases”, it says. “Risks are balanced in the near term.”
The report also highlighted a drop in the unemployment rate among Saudi nationals, especially for women.
Despite CPI (Consumer Price Index) inflation having increased in recent months – with the introduction of the value-added tax (VAT) and higher gasoline and electricity prices, with a forecast at 3 per cent this year – the IMF predicts inflation will stabilise at around 2 per cent over the medium term. The fiscal deficit is projected to continue to narrow, from 9.3 per cent of GDP in 2017 to 4.6 per cent of GDP in 2018 and then further to 1.7 per cent of GDP next year.
The current account balance is expected to be in a surplus of 9.3 per cent of GDP in 2018 as oil export revenues increase and remittance outflows remain subdued, IMF said. The Saudi Arabian Monetary Authority’s (SAMA) net foreign assets are also expected to increase this year and over the medium term.
Credit and deposit growth remain weak, but both are expected to strengthen due to higher government spending and non-oil growth. Bank profitability should increase as interest margins widen, and banks remain well capitalised, the report pointed out.
The projections come as the Saudi government continues with fiscal reforms, including the introduction of VAT and an energy-price hike that that was done in the beginning of this year. As per Vision 2030, reforms measures are also being implemented to improve the business environment, develop the small and medium enterprises (SME) sector, deepen the capital markets, increase the involvement of women in the economy and develop new industries with high potential for growth and job creation.
Similar points were highlighted by the World Bank when it said earlier this year that the reform initiatives could push growth to over 2 per cent in 2019. “As the National Transformation Program (NTP)-related reforms and direct government initiatives aimed at the private sector are implemented, while capital spending is simultaneously ramped up, further domestic growth opportunities are foreseen to open up,” the World Bank said.
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