Saudi Arabia’s Strong Growth Offers Chance to Tackle Jobs Challenge

Growth outlook remains positive, oil market the main risk

Saudi Arabia continues to play key stabilizing role in global oil market

Reforms to focus on growth and employment while maintaining stability

In its latest annual assessment of Saudi Arabia, the IMF says that while growth is likely to slow to 4 percent in 2013 as oil output declines relative to last year, activity in the private sector will remain healthy.

“The outlook for Saudi Arabia’s economy remains positive,” said Tim Callen, IMF mission chief for Saudi Arabia. “The country should continue to take advantage of this opportunity to create jobs, address housing shortages, develop the small and medium-sized enterprise sector, and further strengthen the fiscal position.”

The main risk to the outlook stems from the oil market, although the government has prudently used the period of high oil prices to build substantial fiscal buffers, which provide plenty of scope to smooth government spending over the medium term in the event of a decline in oil prices.

Contributing globally, focusing domestically

One of the best performing of the Group of Twenty leading industrial and emerging market economies, Saudi Arabia has supported the global economy in recent years through its stabilizing role in the global oil market. Increased oil production in 2011 and 2012 helped prevent supply disturbances elsewhere from having a detrimental impact on global growth. The government has also provided significant financial support to other Middle Eastern countries.

In addition to playing an important global and regional role, the IMF report notes, Saudi Arabia also needs to focus on domestic reforms to reap the benefits and address the challenges being created by its young and growing population.

• Creating employment. A large number of young people will enter the labor market in the next decade and beyond, and creating a sufficient number of rewarding jobs for them in the private sector will be a challenge. The authorities are thus giving priority to labor market policies aimed at improving skills and raising private sector employment of Saudi workers.

• Housing an expanding population. Urbanization and population growth in Saudi Arabia have boosted demand for housing. The lack of affordable housing saw a sharp increase in rents during 2007-11, which was one of the main drivers of inflation. Efforts to expand access to housing are appropriate and could make an important contribution to inclusive...