Dubai: Saudi Arabia’s economic reforms programme under Vision 2030 is moving in the right direction and the government need not hurry with the fiscal balance programme (FBP), according to the International Monetary Fund (IMF).

Saudi Arabia has some fiscal space that should be used to undertake a more gradual fiscal consolidation that balances the budget by 2022 rather than in 2019 as originally set out in the FBP.

“The fiscal measures that have so far been announced, if fully implemented, appear sufficient to move the budget close to balance in 2022. The focus should now be on successfully implementing these measures, smoothing the planned adjustment, improving the composition of the expenditure adjustment to provide more room for social safety net or other spending to support structural reforms,” Timothy Callen, Mission Chief for Saudi Arabia, IMF, said during online press briefing from Washington.

According to the IMF official, fiscal policy has continued to adjust to lower oil prices. The non-oil primary deficit declined to 44.7 per cent of non-oil GDP (gross domestic product) in 2016 from 49.8 per cent in 2015. A contraction in spending of 6.4 per cent was led by a sharp fall in capital expenditures.

“Effective prioritisation, sequencing, and coordination of the reforms is essential, and they need to be well-communicated and equitable to gain social buy-in and ensure their success,” Callen said.

The kingdom’s real GDP growth slowed to 1.7 per cent last year from over 4 per cent in 2015, with non-oil growth near-zero compared to 3.2 per cent in 2015. Non-oil growth is projected to pick up to 1.7 per cent 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.

After increasing in early 2016 due to higher energy and water prices, CPI inflation has turned negative in recent months. It is, however, expected to increase over the next year due to the recently introduced excise taxes, further energy price reforms, and the introduction of the VAT (value-added tax) at the beginning of 2018. The IMF official said, substantial work has been done to introduce VAT from the beginning of next year and it will go ahead as scheduled.

With relatively limited direct trade and financial links, the IMF expects the diplomatic rift with Qatar not to affect the economic outlook of Saudi Arabia.