Saudi Arabia is making progress in implementing its economic reforms and the kingdom’s decision to slow the pace of fiscal adjustments is correct as the Arab world’s biggest economy continues to recover after a contraction last year, the IMF managing director Christine Lagarde, said.
“The [Saudi] authorities are continuing to make good progress in implementing their ambitious reform agenda,” Ms Lagarde said after meeting with Saudi Arabia’s Crown Prince Mohammed bin Salman in Washington late Friday. “The decision to slow the pace of fiscal adjustment, as was set out in the 2018 budget, is appropriate.”
Ms Lagarde and Prince Salman discussed some of the recent economic development in Saudi Arabia and the ongoing economic reforms, including the introduction of VAT and the government’s push to open up and include more women in the economy. The Washington-based organisation expects the country’s real gross domestic product - GDP adjusted for inflation – growth to pick-up this year.
The IMF in January raised its economic growth forecasts for Saudi Arabia, the world’s biggest crude exporter, as the price of oil firmed after a three-year slump. Brent crude recorded its fourth weekly gain on Friday rising to $70 a barrel. The IMF expects Saudi GDP to grow 1.6 per cent in 2018, compared with its earlier 1.1 per cent estimate. Riyadh, however, estimates that Saudi economy will expand by 2.7 per cent in 2018.
Saudi Arabia, which has slowed fiscal adjustments by pushing the deadline of eliminating deficit from 2020 to 2023, aims to radically change its hydrocarbons-dependent economy and cut dependence on oil revenue to fuel growth as part of its Vision 2030 which seeks to revamp the country. Reform efforts include a reduction of subsidies on fuel and electricity and the implementation of a 5 per cent VAT to generate alternative revenue streams. Riyadh also plans to unlock value in some of the state assets, including Saudi Aramco, by part-privatising them or sell minority shares to public.
The 5 per cent listing of Saudi Aramco, slated for this year, at the government's $2 trillion valuation may raise $100 billion. "The fact that the fiscal adjustment is shifted from 2020 to 2023 and 2025 for some areas is positive," said Monica Malik, chief economist at Abu Dhabi Commercial Bank. "It provides wider timeframe for the economy to make adjustments to the fiscal reforms. The higher oil prices are also very supportive and allow a more gradual pace of fiscal reforms than say if oil had stayed at the levels seen in 2016."
The government which is boosting spending this year through its biggest-ever expansionary budget is also striving to get women to play a greater role in the economy.
The Saudi crown prince, who is driving the economic and social transformation agenda, is currently on a three-week official US tour. He has already met the President Donald Trump and senior members of his administration.
Officials travelling with Prince Salman are also meeting with investment banks that include JPMorgan Chase, Morgan Stanley, Goldman Sachs, Citigroup and Bank of America, Saudi Finance Minister Mohammed Al-Jadaan said last week. The Saudi delegation is also expected to visit Boston, New York, Seattle, San Francisco, Los Angeles and Houston on a trip scheduled to last through April 7.
The Saudi delegation will visit American companies in several industries including entertainment, technology and banking. Saudi officials are already in talks for investments in US infrastructure and technology, he said.