On 17 August 2022, the IMF published a report following consultations with Saudi Arabia under Article IV of the IMF’s articles of agreement. A press conference was also held to discuss the assessment of the Saudi economy.

Saudi Arabia has been recovering strongly from the recession caused by the pandemic. The rising oil production and prices with a strengthening economy have improved the fiscal position. Economic growth was 3.2% in 2021, driven by the recovery in the non-oil sector. Growth is expected to increase to 7.6% in 2022 and to accelerate over the medium term as the reform agenda is implemented and the National Investment Strategy produces results.

The overall fiscal balance has improved, reflecting oil revenues and non-oil tax revenues supported by the recovery of the economy and the effect of the increase of the value added tax (VAT) rate to 15% in mid-2020.

The IMF report emphasised the need to continue the implementation of the Vision 2030 reform agenda to diversify the economy and support strong economic growth. The report notes that further efforts are needed to strengthen non-oil revenue mobilization by taking further tax policy measures. These should include maintaining the current VAT rate and improving revenue administration. In the press briefing the IMF pointed out that non-oil revenue that has tripled over the past four years, supported by the increase in the VAT rate, and it is important to maintain the VAT rate at its present level.

Further domestic resource mobilisation is possible with respect to non-oil revenue. The tax gap has been reduced from 15% of GDP to around 10% of GDP, but this still leaves room for improvement in tax collection. More revenue could be raised through taxation on income and profits or property taxation, which currently raise negligible amounts. Revenue mobilization can be pursued not only from tax policy measures, but also from measures to improve tax administration.

Taxpayer registration needs to be improved. This involves efficient arrears management; and comprehensive audits to ensure that tax collection is continuing to improve. In other countries these measures have helped to maintain the level of non-oil revenue collection.

The IMF report welcomed the progress on the structural reform agenda and the pace of labour market reforms which have doubled the participation of women in the labour force.

Efforts are also required to improve the regulatory and business environment, to promote private investment, increase productivity and combat corruption. The report welcomed the climate commitments set out in the Green Initiative and encouraged the government to take the specific steps to implement the measures. There is also a need to improve data quality and availability.