On July 18, 2016, the Executive Board of the International Monetary Fund (IMF) has concluded the Article IV Consultation with Kingdom of Saudi Arabia. Real GDP growth is expected to slow to 1.2 percent in 2016, but recover to 2 percent in 2017 as the pace of fiscal consolidation eases and to settle around 2.25 -2.5 percent over the medium-term. Inflation has risen in recent months to over 4 percent as energy and water prices have been increased, and is expected to ease to 2 percent in 2017. Bank deposits have declined, but growth of credit to the private sector remains strong. Capital buffers are high, NPLs low, and banks are well provisioned against loan losses. SIBOR has moved higher in recent months and the spread to U.S rates has widened as liquidity has tightened. SAMA relaxed the loan-to-deposit ratio in February and increased its reverse repo rate by 25bp to 0.5 percent in December. Based on current policies, the fiscal deficit is projected to narrow to 13 percent of GDP in 2016. Non-oil revenues are expected to increase, while spending restraint, particularly on the capital side, will result in a substantial reduction in expenditure. The fiscal deficit is expected to be financed through a mix of deposit drawdown and domestic and international borrowing. The current account deficit is projected to narrow to 6.4 percent of GDP in 2016 and then move close to balance by 2021 as oil prices partial recover. SAMA's NFA are expected to fall further in 2016, but the pace of decline will slow over the medium term. The Kingdom of Saudi Arabia has begun a fundamental policy shift to respond to low oil prices. The government has introduced a series of reforms over the past year and has recently set out plans for a bold and ambitious transformation of the Saudi Arabian economy in Vision 2030 and the National Transformation Program. Diversifying the economy, creating jobs for nationals in the private sector, and implementing a gradual, but sizable and sustained fiscal consolidation to reach budget balance in 5 years are key policy priorities. --More
