Riyadh - Mubasher: Saudi Arabia has embarked on a bold reform program under Vision 2030, according to a report by a team from the International Monetary Fund (IMF), which held discussions between 30 April and 11 May 2017.
According to the IMF, Saudi authorities are beginning to make good progress in identifying and reducing obstacles to private sector growth.
“A large, sustained, and well-paced fiscal adjustment is needed to achieve budget balance over the medium term,” the report indicated.
“Female participation in the labor force has been increasing, but continued efforts are needed to enable women to contribute more to growth and productivity,” it added.
The reforms aim to diversify the economy, give a larger role to the private sector, increase the number of jobs for Saudis in the private sector, and adjust fiscal policy to ensure macroeconomic stability.
The reforms are ambitious and further efforts on effective prioritization, sequencing, coordination, and communication will be needed to maximize the chances of their successful implementation, the report further explained.
“The government is adapting its fiscal policy to lower oil prices. The aim of bringing about a large, sustained, and well-paced fiscal adjustment to achieve a balanced budget is appropriate.”
“The target of balancing the budget, however, does not need to be met in 2019 as set out in the Fiscal Balance Program (FBP) given Saudi Arabia’s strong financial asset position and its low debt.”
As per the report, a more gradual fiscal consolidation to achieve budget balance a few years later would reduce the effects on growth in the near-term while still preserving fiscal buffers to help manage future risks.
Energy price reforms are a key priority, but there is scope for a gradual implementation to give households and businesses more time to adjust.
Additional reforms are expected to be announced in the coming months to boost the private sector, including an ambitious privatization and PPP program to reduce the role of the government in the economy, the report noted, adding that creating more jobs for Saudi nationals in the private sector is essential.
“The exchange rate peg to the U.S. dollar continues to serve Saudi Arabia well given the structure of the economy.”
The international institution also said that Saudi Banks are well regulated and supervised, as the Saudi Arabian Monetary Agency (SAMA) has successfully managed emerging financial sector risks over the past year.
Efforts by the Capital Market Authority (CMA) to develop the local capital markets are very welcome and will provide more financing and saving opportunities in the domestic economy.