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The IMF praises reforms underway in Saudi but calls for more especially with employment

What are the Saudi reforms called for by the IMF?

A meeting of OPEC’s ministerial monitoring committee in Saudi Arabia this weekend will assess member states’ commitment to a deal reducing oil production The IMF said real non-oil growth is expected to further strengthen to 2.9% in 2019 Labor market reforms should focus on four areas to encourage Saudi nationals to work in the private sector and companies to hire them

Higher public spending will push Saudi Arabia’s budget deficit to 7% of gross domestic product this year, the International Monetary Fund said on Wednesday, as reported by Reuters.

The Saudi government has forecast a budget deficit of 4.2% of GDP this year, compared to 4.6% in 2018.

The IMF’s projection is based on an assumption that Saudi oil output will average 10.2 million barrels a day and oil prices will average $65.5 a barrel in 2019, it said in a statement after a staff visit to the kingdom.

Where is oil today?

Oil prices rose again on Friday amidst rising tensions in the region stemming from attacks on energy assets in Saudi and the UAE, prompting fears of supply disruptions.

Brent crude futures were at $73.00 a barrel up 38 cents, or 0.5%, from their last close, rising for a fourth straight session, as tabulated by Reuters. Brent is up 3.4% for the week.

“Earlier this week, U.S. staff were evacuated from the American embassy in Baghdad, while U.S. President Donald Trump ordered the deployment of an aircraft carrier group, B-52 bombers and Patriot missiles to the Middle East,” said Reuters.

A meeting of OPEC’s ministerial monitoring committee in Saudi Arabia this weekend will assess member states’ commitment to a deal reducing oil production, Iraq’s oil minister said on Thursday.

All good for oil-based Saudi spending, but what is the state of the kingdom’s economy?

Expected Saudi economic performance

The IMF said the introduction of a value-added tax has been very successful, but the Saudi government should consider raising the rate from 5% after consulting with other Gulf governments.

Saudi Finance Minister Mohammed al-Jadaan said last month the kingdom recorded a budget surplus of $7.4 billion in the January-March period, its first surplus since oil prices plunged in 2014.

The IMF said real non-oil growth is expected to further strengthen to 2.9% in 2019, boosting overall economic growth to 1.9%, slightly higher than its earlier projection of 1.8%.

It said the increase in oil prices since the turn of the year is boosting confidence.

Saudi central bank governor Ahmed al-Kholifey told Reuters last month that Saudi economic growth in 2019 would be “no less than 2%”.

The Saudi economy grew by 2.2% last year, after shrinking in 2017.

State of reforms and recommendations

“A reduction in the government wage bill, a more measured increase in capital spending, and the better targeting of social benefits will all yield fiscal savings,” the IMF said.

The IMF noted that energy price reforms have helped reduce per capita consumption of gasoline and electricity.

Reforms to the capital markets, legal framework, and business environment are also progressing well but challenges remain, it added.

Real oil GDP increased by 2.8%, while real non-oil GDP growth rose to 2.1% and expected to further strengthen to 2.9%in 2019.

“Government spending increased, but the exit of expatriate workers and dependents appears to have held back growth,” said the IMF.

“Achieving planned fiscal targets will require implementing the reforms set out in the Fiscal Balance Program and identifying additional fiscal measures.”

The IMF recommended that planned energy and water price reforms, supported by compensation for low and middle-income households through the Citizens Account program, and increases in expatriate labor fees should proceed.

“Labor market reforms should focus on four areas to encourage Saudi nationals to work in the private sector and companies to hire them,” the IMF said.

It suggested reducing the availability and attractiveness of government work.

“Authorities should clearly signal that government employment will not increase in the future,” it said.

It added that the government should strengthen education, training, and career development to equip students with the skills in demand in the private sector adding that companies need to play their part by ensuring career development is a high priority in their human resource policies.

The IMF called for increasing the mobility of expatriate workers through reform of the visa system, allowing expatriates to move freely between jobs, reducing wage differentials with nationals.

And lat but not least, the IMF said regulations should be reviewed to ensure there are no impediments to female employment.