Riyadh – Mubasher: Recent positive indicators combined with an increase in oil prices since the beginning of 2019 have boosted confidence in Saudi Arabia’s economy, the International Monetary Fund (IMF) said in its report released late on Wednesday.

The Washington-based fund said it is difficult now to assess future developments in the oil market given uncertainties about production in some key exporting countries. 

The IMF noted that economic reforms in Saudi Arabia, the world's largest oil exporter, have started to yield positive results as non-oil growth has improved, and female labour force participation and employment have ratcheted up. 

The kingdom’s government spending has risen, supporting growth but raising medium-term fiscal vulnerabilities to lower oil prices.

The GCC nation’s real non-oil growth is projected to hike to 2.9% in 2019, the IMF noted.

The international institution said that the reforms need to make Saudi nationals more competitive for private sector jobs, raise foreign direct investment, and increase the availability of finance for young and growing companies.

The kingdom’s real gross domestic product (GDP) growth rebounded to 2.2% during 2018 after contracting in 2017.

“CPI inflation rose with the introduction of the value-added tax (VAT) and increase in energy prices in January 2018 but has eased since as housing rents have fallen,” the report highlighted.

Saudi Arabia’s real oil GDP growth is expected to reach 0.7% in 2019, while the overall real GDP growth is to forecast to reach 1.9%.

Oil GDP growth would be higher if the kingdom increased its production over the course of 2019, according to the report.

The IMF pointed out that the fiscal deficit will rise to 7% of GDP in 2019 in spite of the budget surplus during the first quarter of 2019.

“No decline in the overall fiscal deficit from this year’s projected level is expected over the medium term based on current policies and the oil price path currently embedded in financial markets ($57 a barrel in 2024),” the IMF said.

It is worth mentioning that the fiscal deficits in recent years have resulted in a decline in the government’s fiscal buffers.

In 2018, the central government debt-to-GDP ratio was 19.1% and the central government net financial asset-to-GDP ratio was 0.1%.

The report noted that there are four areas to encourage Saudi nationals to work in the private sector and companies to hire them represented in:

• Reducing the availability and attractiveness of government work
• Strengthening education, training, and career development
• Increasing the mobility of expatriate workers through reform of the visa system.
• Further increasing female participation and employment

However, the Saudi government is reviewing its social assistance programmes in a bid to ensure they provide adequate financial support to those in need and are well-targeted. 

Such programmes should be based on a commonly agreed poverty line and reliable information on the distribution of income, the report recommended.

As for the financial sector, the IMF stated that the exchange rate peg continues to serve Saudi Arabia well given the current economic structure.