"Reforms have started to yield results and... the outlook for the economy is positive," the International Monetary Fund (IMF) said in a regular report, which was welcomed by the Ministry of Finance. The 2019 Article IV Consultation report for Saudi Arabia commended the Kingdom's progress made in implementing its reform program that aimed at supporting the diversification of the economy, inclusive growth and job creation. It confirmed that the Kingdom is continuing the implementation of reforms that aim at strengthening the legal framework and improving business climate. The report pointed out that the structural reforms undertaken by the government include: financial markets, foreign investment, legal framework, ease of doing business and SMEs. The report also pointed out the continued recovery of the non-oil economy, where it expected growth rates to accelerate to 2.9% in 2019, which is supported by positive economic indicators since the outset of the year. The report also indicated that the raise in the government spending and increased confidence in the economy support economic activity, while the impact of expatriate workers exit on economic growth would be limited. The report also predicted that the growth rate of the non-oil sector will continue to improve over the medium term to reach 3% to 3.2% over the coming years as economic reforms continue to be implemented. It noted the decline of the unemployment rate among citizens to 12.5% during the first quarter of 2019, the improvement of credit growth, including lending to the construction, real estate, and manufacturing sectors, as well as the good position of banks. The report also acknowledged the increase of reserves at the Saudi Arabian Monetary Authority (SAMA), which is considered high using the IMF's assessment of reserve adequacy (ARA) metric. In addition, the report expected a decrease in the non-exported oil primary deficit. The report confirmed that the Vision Realization Programs of the Saudi Vision 2030 have moved from the design stage to the implementation stage. The economic and social reforms that support growth and employment of citizens are beginning to have a positive impact on the economy, according to the report. The IMF's report commended the progress made through the reforms that contributed to strengthening the general fiscal framework, risk analysis and process of budget preparation, as well as establishing a medium-term general fiscal framework and developing an online expenditure management system (Etimad). In addition to achieving the rapid progress in financial market reforms and the domestic debt market, the report noted that these reforms culminated in the inclusion of the Kingdom in the international equities and bonds markets indexes this year. It also valued the ongoing measures to improve the governance and anti-corruption framework, strengthen the AML/CFT framework and stressed the importance of continuing reforms in these areas. At the same time, the report called for more effort to achieve greater fiscal control to reduce risks in the medium term. The report confirmed that the government has implemented many of the recommendations outlined in the 2018 report of Article IV consultation and the 2017 Financial Sector Stability Assessment Report. It mentioned that the implemented recommendations included; the continuous reforms to develop non-oil revenues and increasing the volume of bank lending for SMEs. At the same time, while the report considered that there was a need to continue fiscal consolidation efforts, setting additional fiscal measures and improving expenditure management to rebuild the fiscal buffers and limit risks in the medium term; it praised the achieved improvement in the quality of economic data, as well as the Council of Ministers approval of the new Government Tenders and Procurement Law. The report commended the efforts made to increase opportunities to obtain financial services under the Financial Sector Development Program. It believed that maintaining the exchange rate peg to the US dollar is still the best option for the Kingdom, given the structure of its economy. Commenting on the IMF's Article IV Consultation report, Minister of Finance Mohammed Bin Abdullah Al-Jadaan said: "The IMF report reaffirms the significant progress made by the Kingdom as a result of implementing many structural reforms planned in accordance with the Vision Realization Programs under Saudi Vision 2030, especially the reforms regarding combating corruption, money laundering and combating the financing of terrorism." He added, "Most of the recommendations laid out in the 2019 Article IV Consultation report are in line with the measures taken by the government that would achieve fiscal sustainability according to best practices, including the continuous progress in reforms to improve efficiency of public financial management, and work to achieve financial stability and spur economic growth." Indeed, MOF agrees with the report's estimates of the economic outlook over over the medium term but differs with some other estimates included in the report, such as estimates of expected budget deficits. In this context, MOF confirms its commitment to achieve the objectives of the Fiscal Balance Program over the medium term. — SG
