The IMF has given Saudi Arabia another positive report following the annual Article IV consultation visit to the kingdom earlier this month.
“The economic outlook in Saudi Arabia remains favorable. Growth above 4 percent is expected in 2014 and 2015, led by government spending and robust private sector activity. Risks around this growth outlook are evenly balanced. Inflation is likely to remain subdued,” the IMF said in a statement issued following the visit to the kingdom by a team led by Tim Callen, IMF Mission Chief to Saudi Arabia.
“The government is undertaking an ambitious economic reform and investment programme to further develop and diversify the economy and create jobs, and important progress is being made,” the report quoted Callen as saying. “The programme is focused on further developing infrastructure, improving the business environment, increasing the quality of education and skills, and employing more Saudi nationals in the private sector.”
Callen said the IMF expects Saudi Arabia’s fiscal surplus to decline further in 2014 as government spending increases and that the budget may move into deficit in the next few years.
“It is therefore important to slow the growth of government spending,” Callen said. “The substantial fiscal buffers that the government has accumulated over the past decade already provide important protection to the economy in the event of a negative shock such as a fall in oil prices, and should be maintained.”
Callen said Saudi Arabia should further reform the annual budget, introduce a medium-term budget framework, and develop tools to manage the volatility of oil revenues.
“Monetary and macroprudential policy settings are appropriate given the subdued inflation outlook,” Callen said. “Equity prices, however, have risen strongly over the past year, and should be carefully monitored in the period ahead. The introduction of a formal macroprudential framework would strengthen the financial stability framework.”
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