Saudi Arabia has made "considerable progress" in reforming its economy as part of its Vision 2030 programme announced in 2016, according to the International Monetary Fund (IMF).
In a new report, the IMF said fiscal consolidation efforts are "beginning to bear fruit", as reforms to improve the business environment are gaining momentum, and a framework to increase the transparency and accountability of government is largely in place.
It said non-oil growth is projected to pick up to 1.7 percent in 2017, but overall real GDP growth is expected to be close to zero as oil GDP declines in line with Saudi Arabia’s commitments under the OPEC+ agreement.
Growth is expected to strengthen over the medium-term as structural reforms continue to be implemented, it added.
The IMF said risks mainly come from uncertainties about future oil prices, as well as questions about how the ongoing reforms will affect the economy. Employment growth has weakened, and the unemployment rate among Saudi nationals has increased to 12.3 percent, it noted.
Inflation which has turned negative in recent months is expected to increase over the next year due to the recently introduced excises taxes, further energy price reforms, and the introduction of the VAT at the beginning of 2018.
The fiscal deficit is projected to narrow substantially in the coming years. It is expected to decline from 17.2 percent of GDP in 2016 to 9.3 percent of GDP in 2017 and to just under 1 percent of GDP by 2022.
The IMF said Saudi Arabia's current account balance is expected to move into a small surplus in 2017 as oil export revenues increase and import growth and remittance outflows remain relatively subdued.
IMF executive directors noted that the Saudi economy is adjusting to the effects of lower oil prices and fiscal consolidation, but that non-oil growth is expected to pick up this year and overall growth is expected to strengthen over the medium term as structural reforms are implemented.
Directors commended the authorities’ progress in implementing their ambitious reform agenda. They emphasised that proper calibration and sequencing of reforms will be crucial to their success.
They also commended the authorities’ efforts to enhance non-oil revenue and welcomed the plan for further energy price reforms.
The IMF also highlighted the "good progress" being made in identifying and removing obstacles to private sector growth, and welcomed the intensive consultation with the business community. At the same time, it called for further steps to boost female labour force participation and employment.