Riyadh, May 19

The International Monetary Fund (IMF) today welcomed accelerated economic reforms by Saudi Arabia to reduce its reliance on oil but said more measures are needed to cover a fiscal deficit.

Over the past 12 months ‘there has been a significant acceleration in reforms in Saudi Arabia’, an IMF team said in a statement following a visit to the kingdom.

It said the Vision 2030 plan, announced by Riyadh last month, sets a bold and far-reaching transformation of the economy to diversify growth, reduce dependence on oil and increase role of private sector.

The foundation of the plan, launched by Deputy Crown Prince Mohammed bin Salman, is the sale of less than five per cent of state oil giant Saudi Aramco in what officials say will be the world’s largest ever initial public offering.

Proceeds from the share offer will contribute to creating the biggest government investment fund in the world, with a value of $2 trillion, whose profits can provide an alternative to lower oil revenues.

“Saudi fiscal policy is appropriately adjusting to the drop in oil prices,” said the IMF, welcoming the control of public spending and energy price reforms.

It said more actions were needed to balance a budget deficit estimated at 14 per cent of gross domestic product this year.

“Such fiscal consolidation should include further adjustments in domestic energy prices, firm control of expenditures, and further increases in non-oil revenues,” the IMF said.

It welcomed the planned introduction of a value-added tax in 2018 and other tax measures.

Saudi Arabia, the world’s biggest oil exporter, in 2015 posted a record budget deficit of $98 billion and projected a shortfall of $87 billion this year.

The IMF also said the exchange rate peg of the riyal to the US dollar continues to serve Saudi Arabia well.

Due to the severe impact of the plunge in oil revenues on the Saudi economy, international ratings agencies have lowered the kingdom’s credit worthiness.

Crude prices, which still account for the majority of Saudi revenue, have slumped by around half since they started to decline in mid-2014.