IMF projects slower growth for Saudi Arabia this year

Gross Domestic Product (GDP) in the country is expected to grow 1.9% in 2019 from 2.2%, and then strengthen to 3% in 2020.

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São Paulo – The International Monetary Fund (IMF) projects Saudi Arabian Gross Domestic Product (GDP) to have a real growth of 1.9% this year, driven by the non-oil economy. If confirmed, the growth will decline from 2.2% last year.  The information is from a report released this Thursday (18) by the Fund.

The institution expects non-oil growth to strengthen to 2.9% this year, while oil growth is expected to slow to 0.7% due to the impositions of the agreement the Organization of Petroleum Exporting Countries (OPEC) signed with other oil-producing countries.

However, IMF stresses that growth may pick-up over the medium-term as ongoing reforms take hold in the country. The expectation for 2020 is a real GDP growth of 3%.

The organization highlights that the unemployment rate among Saudi nationals has moved down but remains high at 12.5%. The overall unemployment rate, comprising both nationals and expatriates, is 5.7%.

The country’s current accounts are closely related to the oil economy, since this commodity is the main revenue source of the government. Therefore, IMF projects the fiscal deficit to widen to 6.5% of GDP in 2019 from 5.9% in 2018 as spending is projected to increase. The deficit is then projected to decline to 5.1% in 2020, but with oil prices implied by futures markets declining over the medium-term, the deficit is then projected to widen again.

On the other hand, the Fund projects the current account surplus to narrow to 6.9% of GDP in 2019 from 9.2% in 2018 as oil export revenues moderates and import growth picks up.

IMF also forecasts Saudi Arabian inflation to decline by 1.1% in 2019 from 2.5% in 2018, mainly due to falling rents, but it tends to turn positive in 2020, reaching 2.2%, as energy price increases are implemented.

Fiscal reforms in the country include the extension of the scope for the Value Added Tax (VAT) – applied since January 2018 – adjusting gasoline prices on a quarterly basis, and increasing fiscal transparency. According to the IMF, reforms to the capital markets, legal framework, business environment, and small- and medium-sized enterprises sector are ongoing too.

Translated by Guilherme Miranda

Amer Hilabi/AFP

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