Saudi Ministry of Finance (MOF) in response to the IMF’s report: we disagree with some estimates — our estimates of economic growth are in line with those of the IMF but there is a difference in the budget deficit estimates for both of us.
The Saudi Ministry of Finance confirmed that it agrees with the estimates of the future prospects of economic growth from the IMF, in the medium term, but disagrees with some other estimates included in the IMF’s report such as “the budget deficit estimates for 2019 and subsequent years” to confirm the ministry’s commitment to achieve the objectives of the fiscal balance program in the medium term.
Commenting on the statement of the 2019 Article IV consultations of Saudi Arabia, the Saudi Finance Minister, Mohammad Al-Jadaan said that the IMF’s report reaffirms Saudi Arabia’s tangible progress as a result of implementing many of the structural reforms planned in accordance with the programs to achieve the Kingdom’s Vision 2030, especially those related to combating corruption, money laundering, and the financing of terrorism.
Al-Jadaan explained that the majority of the recommendations of the IMF’s report of 2019 Article IV consultations of Saudi Arabia, are consistent with the measures taken by the Saudi government to achieve financial sustainability in accordance with the best practices adopted globally, including continuing progress in reforms to raise the efficiency of public financial management, work to achieve financial stability and drive economic growth rates.
The Ministry of Finance welcomed the IMF’s report, where the report praised the progress made by Saudi Arabia in the implementation of its reform program aimed at supporting the diversification of the economy, inclusive growth, and job creation, stressing that Saudi Arabia continues to implement reforms aimed at strengthening the legal framework, and improving the business climate .
The recent IMF’s report showed that the Saudi government’s structural reforms included sectors of financial markets, foreign investment, the legal framework, doing business, and SMEs.
The IMF’s report pointed to the continued recovery of the non-oil economy, where it expected to accelerate growth rates to reach 2.9% in 2019, which is supported by positive economic indicators since the beginning of the year, noting that the rise in government spending and increased confidence in the economy support economic activity and at the same time, the impact of the exit of employment expats on economic growth will be limited.
Growth rates for the non-oil economy will continue to improve over the medium term to around 3% to 3.2% over the coming years as economic reforms continue to be implemented, according the IMF’s report.
The Power of Mortgage Lending
The IMF’s report talked about the decline in the unemployment rate among citizens to 12.5% during the first quarter of 2019, improved credit growth in light of the recovery in lending to the sectors of construction and manufacturing industries. In addition, the good position of banks and the strength of mortgage lending growth. Expecting the initial deficit not related to oil exports to decline, the report also pointed to an increase in the size of reserves at the Saudi Arabian Monetary Agency (SAMA), which is already high compared to the assessment of the adequacy of the reserves set by the IMF.
The IMF’s report stressed that vision2030 realization programs have moved from the design stage to the implementation stage, and that the economic and social reforms that support the growth and employment of citizens are beginning to have a positive impact on the economy.
The IMF’s report praised the progress made through economic reforms that contributed to strengthening the fiscal framework, strengthening its risk analysis, strengthening the budget process, developing a medium-term fiscal framework, and introducing an online expenditure management platform (Etimad), as well as achieving rapid progress in financial and domestic debt market reforms, pointing out that these reforms culminated in the inclusion of Saudi Arabia in the indices of stock markets and global bonds this year.
The IMF’s report commended the ongoing measures to improve the governance and anti-corruption framework and to strengthen the AML/ CFT framework, stressing the importance of continuing reforms in these areas, while calling for more efforts to achieve greater fiscal control to reduce risks in the medium term.
The IMF’s report stressed that the Saudi government has implemented many of the recommendations contained in the report of the Article IV consultations for 2018, and the financial sector stability assessment report for 2017, noting that the recommendations that have been implemented include the continuation of reforms to develop non-oil economy, and increase the volume of bank lending to SMEs.
While the report saw that fiscal consolidation reforms, additional fiscal measures, and improved expenditure management were needed to rebuild preventive financial margins and reduce risks in the medium term, it welcomed the improvement in the quality of economic data and the Saudi Cabinet’s approval of the new government competition and procurement system.
The IMF’s report praised efforts to increase access to financial services under the financial sector development program and considered that the exchange rate peg to the US dollar remains the best option for Saudi Arabia due to the structure of its economy.