Saudi Arabia is successfully keeping inflation very low despite large surpluses earned from high oil prices. Its external current account surplus is projected to reach 31.3 percent of GDP in 2006, and the central government surplus, 17.2 percent of GDP. Part of the fiscal surplus will be used to pay down the central government debt, which is projected to decline to 17 percent of GDP. The country’s growth prospects for 2006 are very favorable in light of the expected sustained increase in global demand for oil, said the IMF in its annual review of the economy.
Steady implementation of structural reforms has improved the investment climate and paved the way for Saudi Arabia’s accession to the World Trade Organization in 2005. Privatization is advancing, and numerous mega projects in the non-oil sector are being implemented through public-private partnerships.
IMF Executive Directors encouraged the authorities to sustain the pace of structural reforms and the expansion of the non-oil economy to further increase employment opportunities for the growing Saudi Arabian labor force. This will involve effective use of the growing oil revenues to further promote private sector growth by increasing spending in areas where social and private returns are high.
Directors commended the authorities’ support of oil market stability by increasing oil production and implementing an ambitious investment plan to expand production and refining capacity. They encouraged the country’s growth-promoting initiatives, noting that these are helping to moderate global current account imbalances. They also welcomed the plan to further increase resources for social sector and infrastructure priorities while emphasizing the importance of efficient resource use. The authorities’ use of oil revenues to increase spending while using the fiscal surplus to reduce public debt will strengthen private sector confidence, the Directors said.
They expressed approval of sound financial sector policies and encouraged efforts to further deepen the capital market. They welcomed the authorities’ decision to participate in the IMF’s General Data Dissemination System and encouraged Saudi Arabia, with Fund technical assistance, to address statistical weaknesses.
|Real oil GDP||6.7||5.9||-1.6||4.2|
|Real non-oil GDP||4.6||6.8||6.8||7.6|
|Consumer prices (end of period)||0.4||0.7||1.0||1.0|
|Current account balance||52.0||90.8||98.1||82.1|
|Gross official reserves||87.9||153.2||166.8||188.1|