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Middle East and Central Asia > Saudi Arabia

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Cover IMF Working Papers
Market Power in the Middle East
Yevgeniya Korniyenko
,
Ahmed K Tohamy
, and
Weining Xin
The Middle East (ME) is often perceived as region with rentier economies and uncompetitive markets. Evidence of market power in the region however is scant. In this paper, we ask the following three questions: Is the ME uniquely uncompetitive? Has the evolution of market power in the region traced the global rise in market power? What government policies and actions influenced the market power in the region and can taxes be a way to even the playing field? To answer these questions, we utilize comprehensive firm-level data from Compustat between 2004 and 2022 and employ two methods for estimating markups (production function and cost-share approach). We document that market power among listed firms in the ME is higher than in the US, but on a downward trend. We find that the value-added tax (VAT) reforms introduced by some Gulf states from 2018 to 2022 resulted in a reduction of market power, an additional benefit beyond increasing fiscal space. While policymakers should continue to use available regulatory levers to achieve economic efficiency and a level playing field, VAT could be considered as an alternative instrument.
Keywords:
Middle East; Market Power; Markup; Firm Behavior; market power in the Middle East; markups estimate; sample representativeness; markups in GCC country; markups dynamics; Value-added tax; Competition; Inflation; Oil sector; Global
Cover IMF Staff Country Reports
Kuwait: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Kuwait
International Monetary Fund. Middle East and Central Asia Dept.
The 2024 Article IV Consultation with Kuwait discusses that the economy is projected to remain in recession under the baseline in 2024, then to recover over the medium term. The economy remains in recession, but a recovery has begun in the non-oil sector, and inflation is moderating. Lower oil prices and production have weakened the external and fiscal balances, while financial stability has been maintained. The risks around the outlook are skewed to the downside, but substantial financial buffers are a source of resilience to external shocks. Fiscal consolidation of about 13 percent of gross domestic product (GDP) should be implemented at a pace of 1 to 2 percent of GDP per year to reinforce intergenerational equity. The exchange rate peg remains an appropriate nominal anchor for monetary policy. Systemic financial risks remain contained and prudently managed. Continued efforts are needed to strengthen monetary policy transmission, maintain financial stability, and enhance financial intermediation. The authorities aim to implement reforms to support the transition to a dynamic and diversified economy. A comprehensive and well-sequenced structural reform package is needed to improve the business environment by raising efficiency, enhancing transparency, and further opening up the economy.
Keywords:
headline CPI inflation; debt management office; procurement contract; e-government initiative; capital market development; consultation-press release; Structural reforms; Oil prices; Global
Cover IMF Staff Country Reports
Pakistan: 2024 Article IV Consultation and Request for an Extended Arrangement under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for Pakistan
International Monetary Fund. Middle East and Central Asia Dept.
The 2024 Article IV Consultation discusses that Pakistan has taken key steps to restoring economic stability with consistent policy implementation under the 2023–2024 Stand-by Arrangement (SBA). The discussions focused on Pakistan’s medium-term prospects, which helped inform policies and define program objectives. The new government formed after the February elections has continued efforts to strengthen economic conditions and is embarking on a multi-year home-grown reform program to achieve resilient and inclusive economic growth. The program aims to reinforce the authorities’ efforts to bolster policy credibility and entrench stability and accelerate structural reforms to strengthen public finances, improve the provision of critical public services, and create a favorable environment for private-led growth.
Keywords:
reform agenda; SBP's effort; governance arrangement; exchange rate movement; Pakistani authorities; Tariffs; Global
Cover IMF Staff Country Reports
Saudi Arabia: 2024 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. Middle East and Central Asia Dept.
Saudi Arabia’s unprecedented economic transformation is progressing well. Strong domestic demand is keeping non-oil growth robust while unemployment is at record lows. Inflation is contained and the current account surplus is rapidly narrowing. The recalibration of the authorities’ investment plans would help reduce overheating risks and pressures on fiscal and external accounts.
Keywords:
totaling SDR; PRGT loan resource; PRGT subsidy resource; about SDR; deposit of SDR; Foreign direct investment; Oil prices; Women; Global
Cover Policy Papers
FY2025–FY2027 Medium-Term Budget
International Monetary Fund. Office of Budget and Planning
The Executive Board of the International Monetary Fund approved the 2025-27 financial years (FY25-27) medium-term budget. While the global economy has shown resilience to successive adverse shocks, the overall global economic context remains complex with slow and uneven growth, increased fragmentation, deepening divergence, and still high interest rates despite easing inflationary pressures. Against this backdrop, the FY25-27 budget continues to be guided by principles of agility and budget discipline, reinforced by ongoing reprioritization and savings capture. It also builds on strong cooperation with other institutions, ensuring the Fund continues to focus on areas within its mandate, even as it addresses new demands. Work to strengthen internal operations also continue, focusing on both efficiency and effectiveness in meeting changing needs in the post-pandemic workplace, where rapid technological changes are underway. With significant demands within a constrained budget environment, the budget reflects difficult tradeoffs.
Keywords:
medium-term budget; OBP; budget framework; financial support; A. budget overview; budget agility; I. budget process overview; budget envelope; budget remain; budget resource; Budget planning and preparation; Capital budget; Global; Sub-Saharan Africa
Cover Regional Economic Outlook, Middle East and Central Asia, April 2024
Regional Economic Outlook, Middle East and Central Asia, April 2024
An Uneven Recovery amid High Uncertainty
International Monetary Fund. Middle East and Central Asia Dept.

Abstract

The Middle East and North Africa and the Caucasus and Central Asia regions are positively impacted by the resilience of the global economy. Lower global commodity prices and vigilant policy responses have helped ease inflation in most countries. However, uncertainty and risks have risen amid ongoing conflicts, shipping disruptions, and reduced oil production. This is leading to an uneven recovery across the Middle East and Central Asia, with growth rates varying this year. Policymakers need to ensure economic stability and debt sustainability while navigating geopolitical risks and improving medium-term growth prospects. Amid high uncertainty, it is essential that countries implement reforms to enhance their fundamentals, including by strengthening institutions. Additionally, countries can seize potential economic opportunities amid shifting trade patterns by reducing long-standing trade barriers, diversifying products and markets, and improving infrastructure.

Keywords:
Trade; trade disruptions; trade diversion; trade dynamics; conflict; geoeconomic fragmentation; global value chains; policy actions; IMF staff calculation; MENA country; ME&CA economy; heightened transit trade diversion; oil exporter; trade diversion reshaping trade; headline inflation; Current account balance; Trade balance; Fiscal stance; Exports; Inflation; Middle East and Central Asia; Middle East; Central Asia and the Caucasus; North Africa; East Africa
Cover Policy Papers
Industrial Policy Coverage in IMF Surveillance—Broad Considerations
International Monetary Fund
The paper aims to provide a conceptual framework and guiding principles for the coverage of Industrial Policy (IP) in IMF surveillance. It proposes a working definition of industrial policy, discusses its objectives and main instruments, and provides a brief review of academic literature on IP. The paper discusses the four broad sets of considerations for assessing IP: justification, design, cost-benefit assessment, and implementation. It stresses that IP should be covered in IMF surveillance when it is deemed macro-critical and/or has the potential to generate significant cross-border spillovers. The paper also discusses specific aspects of industrial policies, including trade-related IP, green IP, Special Economic Zones (SEZs), and State-Owned Enterprises (SOEs), and provides examples of the IP coverage in the Article IV consultations with China, Euro Area, Indonesia, Saudi Arabia, and the United States.
Keywords:
Industrial Policy; Horizontal Policies; Structural Policies; Trade Policy; Green Industrial Policy; Special Economic Zones; State-Owned Enterprises; IP measure; IMF surveillance; IP effectiveness; IP definition; transparency policy; IP type; Spillovers; Institutional View on capital flows; Tax incentives; Global
Cover IMF Staff Country Reports
Gulf Cooperation Council: Economic Prospects and Policy Challenges for the GCC Countries
International Monetary Fund. Middle East and Central Asia Dept.
This paper on the Gulf Cooperation Council (GCC) discusses economic prospects and policy priorities for the GCC countries. A comprehensive package of policies should be implemented to respond to near-term shocks and uncertainty and to firmly address medium- and long-term challenges. In the near term, fiscal policy should remain prudent, avoiding procyclical spending and using the windfall from higher oil prices to rebuild buffers. Targeted and temporary fiscal measures could be undertaken to respond to shocks, if they materialize. In the medium term, GCC countries should continue pursuing fiscal consolidation consistent with ensuring intergenerational equity and sustainability, supported by a credible rules-based medium-term fiscal framework. Continued financial sector reforms are needed to support growth and stability. Structural policies should continue focusing on diversifying the economies away from hydrocarbon. Reform efforts aimed at further enhancing product market regulations, labor markets, and governance will spur growth, as will efficient investments in digital and green initiatives to accelerate transformation and support energy transition. The industrial policy should be carefully calibrated and not substitute for structural reforms while minimizing related inefficiencies.
Keywords:
Gulf Cooperation Council; GCC Countries; OPEC; GCC country; centrality indices; policies in the GCC; GCC net; GCC's acceleration; financial market; Inflation; Oil prices; Climate finance; Financial statements; Global; Middle East
Cover Regional Economic Outlook, Middle East and Central Asia, October 2023
Regional Economic Outlook, Middle East and Central Asia, October 2023
Building Resilience and Fostering Sustainable Growth
International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Across the Middle East and Central Asia, the combined effects of global headwinds, domestic challenges, and geopolitical risks weigh on economic momentum, and the outlook is highly uncertain. Growth is set to slow this year in the Middle East and North Africa region, driven by lower oil production, tight policy settings in emerging market and middle-income economies, the conflict in Sudan, and other country-specific factors. In the Caucasus and Central Asia, although migration, trade, and financial inflows following Russia’s war in Ukraine continue to support economic activity, growth is set to moderate slightly this year. Looking ahead, economic activity in the Middle East and North Africa region is expected to improve in 2024 and 2025 as some factors weighing on growth this year gradually dissipate, including the temporary oil production cuts. But growth is expected to remain subdued over the forecast horizon amid persistent structural hurdles. In the Caucasus and Central Asia, economic growth is projected to slow next year and over the medium term as the boost to activity from real and financial inflows from Russia gradually fades and deep-seated structural challenges remain unsolved. Inflation is broadly easing, in line with globally declining price pressures, although country-specific factors—including buoyant wage growth in some Caucasus and Central Asia countries—and climate-related events continue to make their mark. Despite some improvement since April, the balance of risks to the outlook remains on the downside. In this context, expediting structural reforms is crucial to boost growth and strengthen resilience, while tight monetary and fiscal policies remain essential in several economies to durably bring down inflation and ensure public debt sustainability.

Keywords:
growth; inflation; public debt; external financing; commodity prices; structural reforms; investment; labor productivity; financial stability; stress testing; governance reform; GCC country; credit market reform; government effectiveness; reform package; Policy space; Emerging and frontier financial markets; Credit; Labor force participation; Middle East and Central Asia; Central Asia and the Caucasus; Middle East; North Africa; oil exporter; IMF staff calculation; CCA bank; sovereign-bank nexus; Fiscal stance; Current account balance; Commercial banks; Oil exports; Global
Cover IMF Staff Country Reports
Saudi Arabia: 2023 Article IV Consultation-Press Release; Staff Report; and Informational Annex
International Monetary Fund. Middle East and Central Asia Dept.
The 2023 Article IV Consultation discusses that Saudi Arabia was the fastest growing G20 economy in 2022. The Saudi unemployment rate is at a historical low. Amid an increase in labor force participation, total unemployment dropped to 4.8 percent by end-2022—from 9 percent during Covid—reflecting both an increase in Saudi workers in the private sector and expatriate workers (mostly in the construction and agricultural sectors) rising back above pre-Covid levels. Non-oil gross domestic product growth momentum is expected to remain strong, as strong consumption spending and accelerated project implementation boost demand. Careful calibration of investment programs is needed to ensure catalytic effects and avoid crowding out the private sector. The industrial policy agenda should be supporting structural reform efforts, with guardrails put in place to minimize inefficiencies. Fully implementing the Green Initiative is necessary to help Saudi Arabia meet its net zero emissions target.
Keywords:
totaling SDR; headline inflation; quarterly balance of payments; growth momentum; financial asset; Oil prices; External sector statistics; Global