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December 14, 2020

Building Macro-Fiscal Policies and Capabilities in Saudi Arabia to Support National Transformation

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Posted by Saad Alshahrani, Emre Balibek, and Yasser Sobhi[1]

Saudi Arabia has embarked on a major program of national economic transformation. The Kingdom’s Vision 2030, its National Transformation Program 2020, and its Fiscal Balance Program, set out an agenda for reform whose objectives include economic diversification, improving competitiveness and the business environment, increasing foreign direct investment and private sector participation in the economy, and growing the non-oil economy. To support these objectives, the agenda aims at ensuring that the public finances are managed efficiently, effectively, and sustainably, while adhering to high standards of transparency and accountability with a strong emphasis on performance and results.

With these objectives in mind,  the Ministry of Finance (MoF) established in 2016 a Macroeconomic & Fiscal Policies Unit (MFPU) – since 2019 designated the Macroeconomic & Fiscal Policies Deputyship (MFPD) - tasked with providing macro-fiscal input to budget planning over the medium term, as well as strengthening the identification, monitoring and management of macro-fiscal risks.

Since its establishment, the MFPD has ramped up its capacity by hiring new staff, developing their skills, and learning from international best practices. Capacity development provided by the IMF’s Fiscal Affairs Department (FAD) and other partners has supported this process. The Deputyship has established a new Macroeconomic and Fiscal Statistics Center, has built a bespoke medium-term fiscal framework (MTFF), and now uses this framework to produce alternative scenarios for forecasting, analysis, and reporting. Macro-structural models have also been developed as useful tools for fiscal and economic analysis and forecasting. Additionally, work has started on using available models and tools to analyze, quantify and report on potential risks to the fiscal outlook.

At the same time, Saudi Arabia has made efforts to increase budget transparency. The government now prepares and publishes a range of budget documents, which include:

  • for the last three years, a pre-budget statement outlining the medium-term fiscal strategy;
  • the annual budget statement with progressive improvements in its content;
  • a citizen’s budget along with enhanced social media coverage of related budget reports and issues;
  • an end-year report comparing budget forecasts and outturns and explaining the main reasons for deviation; and
  • quarterly budget performance reports providing timely information on fiscal developments.

As a result of these initiatives, Saudi Arabia’s performance on the International Budget Partnership’s Open Budget Index (OBI) has improved, with the country’s transparency score rising to 18 in 2019, up from 1 in 2017 and 0 in 2015, with the ambition to further improve in the future.   

At the same time, other PFM reforms are being implemented across government and the wider public sector. Digital solutions are being introduced through the Etimad platform to facilitate the electronic preparation and submission of budgets by government agencies, as well as an online system to record public procurement transactions (a new procurement law has also been enacted). In addition, work is underway to introduce accrual accounting in government. Beyond the central government, the audited financial statements of Saudi Aramco were published for the first time in 2019, as part of the prospectus prepared by the company to support its first international market bond issue.

Notwithstanding this progress, there remains room for further improvements to support economic policymaking and fiscal transparency. An immediate priority is to develop a sovereign asset and liability management framework. This will help ensure that the impact of fiscal developments and investment decisions on the overall public sector balance sheet are better understood and assessed. Work will also continue to improve the quality and content of the government’s budget documentation thus ensuring higher levels of fiscal transparency.

The experience of Saudi Arabia in building macro-fiscal management capabilities provide some general lessons. The progress made in public financial management in Saudi Arabia reflects the fact that these reforms are part of a broader comprehensive agenda for institutional modernization. It illustrates the value of strong ownership of the reform agenda and the need for adequate resources to be committed for substantial change to be achieved within a well-established institutional structure. The Saudi Arabian experience also serves to demonstrate the importance of anticipating the fiscal challenges of the longer term and taking early action to address them.

 

[1] Saad Alshahrani is the Deputy Minister of Finance for Macroeconomic and Fiscal Policies at the Ministry of Finance, Saudi Arabia; Emre Balibek is a Senior Economist at the Fiscal Affairs Department of the IMF; and Yasser Sobhi is the IMF’s Resident PFM Advisor at the Ministry of Finance, Saudi Arabia.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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