An International Monetary Fund (IMF) team led by Mr. Tim Callen, IMF Mission Chief to Saudi Arabia, held discussions during May 4-15 on the 2014 Article IV Consultation with Saudi Arabia. The completion of the Article IV Consultation is subject to the discussion by the IMF Executive Board. At the conclusion of the mission, Mr. Callen made the following statement:
“The economic outlook in Saudi Arabia remains favorable. Growth above 4 percent is expected in 2014 and 2015, led by government spending and robust private sector activity. Risks around this growth outlook are evenly balanced. Inflation is likely to remain subdued.
“Saudi Arabia continues to play a systemic role in stabilizing the global oil market, which contributes positively to the global economy. Regionally, Saudi Arabia is a generous provider of financial assistance to other countries, while remittances sent home by expatriates working in the country are an important source of income for many countries.
“The government is undertaking an ambitious economic reform and investment program to further develop and diversify the economy and create jobs, and important progress is being made. The program is focused on further developing infrastructure, improving the business environment, increasing the quality of education and skills, and employing more Saudi nationals in the private sector.
“The IMF expects the fiscal surplus to decline further in 2014 as government spending increases, and the budget may move into deficit in the next few years. It is therefore important to slow the growth of government spending. The substantial fiscal buffers that the government has accumulated over the past decade already provide important protection to the economy in the event of a negative shock such as a fall in oil prices, and should be maintained. In addition, the authorities have initiated actions to strengthen the fiscal framework and they are encouraged to build on this progress to further reform the annual budget, introduce a medium-term budget framework, and develop tools to manage the volatility of oil revenues.
“Monetary and macroprudential policy settings are appropriate given the subdued inflation outlook. Equity prices, however, have risen strongly over the past year, and should be carefully monitored in the period ahead. The introduction of a formal macroprudential framework would strengthen the financial stability framework.”