Macroeconomic and financial conditions in the kingdom remained stable in 2004, with strong growth in gross domestic product (GDP), low inflation and abundant liquidity, according to the results of the IMF's latest Article IV consultations, published on 23 November. But despite a decline in the fiscal deficit, some of the kingdom's budgetary policies did not support fiscal consolidation and GDP growth will fall sharply in 2006, the report says.
'The authorities have made significant progress in implementing their structural reform agenda,' says the report. 'However, much remains to be done to strengthen private sector activity and enhance efficiency and productivity. Priority areas are further trade liberalisation, improvements in the business environment and financial sector reforms.' Overall GDP growth slowed to 4.2 per cent in 2004, but macroeconomic and financial indicators remained stable (see table). Growth in the consumer price index in 2004 was low, strong tourism and remittance inflows led to a current account surplus for the fourth consecutive year, official reserves increased, the budget deficit fell and the influx of revenues from privatisation prompted a fall in the debt-to-GDP ratio to 65.8 per cent. But a combination of internal and external factors is expected to lead to sluggish growth in 2005. 'A decline in agricultural output, petroleum price increases and the abolition of textile quotas will affect economic developments,' the IMF says. The organisation suggests that government policies are also storing up problems for the future, and points to increasing expenditure and a failure to fully implement reforms of food subsidies and the petroleum price adjustment mechanism. The perentage of unemployment, despite having fallen each year since 2000, is still in double figures and remains a problem.