Saudi Arabia making progress on economic reforms

Saudi’s economic reforms are making progress as the Kingdom slows down their fiscal adjustments, this is a wise decision according to IMF managing director Christine Lagarde.

“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.”

Lagarde and Prince Salman discussed the recent and ongoing economic reforms in Saudi Arabia, including VAT and more women in the workplace. The IMF expect Saudi’s real gross domestic product to increase this year.

The IMF, in January, increased their growth forecasts for Saudi after oil prices stabilised after a 3-year slump. The IMF expect Saudi to grow 1.6 per cent in 2018, compared with its earlier 1.1 per cent estimate. However, Riyadh expects a 2.7 per cent increase in the economy in 2018.

Saudi Arabia has chosen to slow their fiscal adjustments by pushing the target date of eliminating the deficit from 2020 to 2023. Saudi’s reforms include reducing the subsidies on fuel and electricity, implementing the 5 per cent VAT and the plan to release the IPO for state-owned Saudi Aramco.

“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.”