Saudi medium-term GDP growth to settle around 2.5%, says IMF

Economic growth in Saudi Arabia over the medium term will settle at around 2.25 to 2.5 percent, the International Monetary Fund (IMF) said in a new report.

In a statement released following the conclusion of consultation with the kingdom, the fund reiterated that while real GDP growth is expected to slow to 1.2 percent in 2016, it would recover to 2 percent in 2017 as the pace of fiscal consolidation eased.

The fund welcomed Saudi Arabia’s timely response to oil price volatility, which, supported by sizable fiscal buffers and a resilient financial system, has maintained growth and stability.

The reforms have helped strengthen the kingdom’s financial system while the banking sector is well positioned to weather low oil prices and slower growth, the report noted.

The IMF also welcomed the ambitious reform goals announced by the authorities in Vision 2030 and the National Transformation Program.

However, as the fiscal and current account balances have moved into deficit and growth is starting to slow, the fund stressed the need for continued fiscal adjustment as well as “the need to sequence reforms to reduce implementation risks and give the economy time to adjust”.

Inflation has risen in recent months to over 4 percent as energy and water prices have been raised, but is expected to ease to 2 percent in 2017.

Bank deposits have declined, but growth of credit to the private sector remains strong IMF said

“Capital buffers are high, NPLs low, and banks are well provisioned against loan losses. SIBOR has moved higher in recent months and the spread to US rates has widened as liquidity has tightened,” it said.

The directors of the fund also supported the Saudi  plan to increase the role of the private sector in the economy by focusing on privatization and public-private partnerships, improve the business environment, develop local capital markets, encourage FDI, and support small and medium enterprises.

Write to Brinda Darasha at brinda.d@argaamplus.com