The Saudi private sector is expected to make an increasingly important contribution to the kingdom's economic growth, thanks in large measure to the ambitious reforms being enacted by the government. This is the conclusion of an Article IV consultation with the government conducted by the IMF this autumn, the findings of which were summarised in a 7 November announcement. It marks the first time that details of an Article IV consultation with Saudi Arabia have been made public.
The IMF forecasts that real non-oil gross domestic product (GDP) will grow by 4 per cent in 2001, and that credit to the private sector will increase by almost 11 per cent. The net foreign assets of the Saudi Arabian Monetary Agency (SAMA - central bank) are expected to increase to the equivalent of about one year's prospective imports of goods and services, from 10 months in 2000.
The expected surge in non-oil GDP growth follows the dramatic strengthening of Saudi Arabia's economic position in 2000, 'reflecting higher oil prices and the maintenance of prudent macroeconomic policies', the IMF says. Real GDP growth is estimated to have reached 4.5 per cent, mainly because of an 8.5 per cent increase in oil sector GDP as crude production rose. 'Non-oil GDP growth also recovered moderately to an estimated 2.6 per cent on account of the robust expansion in manufacturing activities, including petrochemicals, and a strong pick-up in the construction and private services sectors,' the IMF says.
The report notes that the budget recorded a surplus equivalent to 3.5 per cent of GDP. This was in spite of a 28 per cent rise in spending, caused mainly by the allocation of funds to settle payments arrears. In the process, the government's domestic debt stock fell to 95 per cent of GDP. Credit to the private sector rose by 6 per cent, mainly driven by a rise in personal and consumer lending. The IMF says that there was a limited pick-up in short-term business lending, partly because of the increase in the private sector's own liquidity following the government's settling of arrears.
The IMF notes with approval the progress the government has made in its economic reform programme and the adherence to a prudent fiscal policy despite the sharp rise in oil revenues. However, the report says the economy remains vulnerable to any sharp downturn in oil prices, and suggests that the government should be prepared to tighten fiscal policy further so as to achieve the long-term goal of a reduction in public debt. The IMF calls for the early introduction of indirect taxes as one method of developing non-oil revenues for the budget.
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