The International Monetary Fund (IMF) has praised Saudi Arabia’s efforts to advance its unprecedented economic transformation.
In a press release, the IMF highlighted the progress achieved by the Kingdom in its modernization and diversification efforts under Vision 2030. “The recent fiscal space exercise has facilitated the recalibration of investment spending planned under Vision 2030 by reprioritizing projects and through sectoral strategies,” it said.
Non-oil Sector
The IMF projected a 4.4% growth in the non-oil sector in the medium term, driven mostly by stronger domestic demand as project implementation bounces back. Additionally, the overall growth is expected to reach 4.7% in 2025, due to the phase-out of oil production cuts.
Meanwhile, inflation would remain under control due to the credible peg to the US dollar and consistent domestic policies, according to the IMF.
Economic Performance
The Executive Board of the IMF concluded the 2023 Article IV consultation with Saudi Arabia on July 31, 2024. It pointed out that while the cuts in oil production led to an overall growth contraction of 0.8% in 2023, the non-oil GDP grew by a robust 3.8%. This was supported by private consumption and non-oil investment.
Moreover, the unemployment rate in Saudi Arabia hit an all-time low, with women participation in the labor force surpassing the 30% target of Vision 2030. Also, geopolitical events have not affected the Saudi economy.
Inflation
The IMF noted that the headline inflation has slowed down rapidly. Inflation rates dropped sharply from 3.4% in January 2023 to 1.6% in May 2024, supported by an appreciating nominal effective exchange rate.
In addition, inflows of expatriate workers and large redevelopment plans in Riyadh and Jeddah have driven an increase in rents at 10% rate. The wholesale prices have also edged up recently, reflecting higher input costs and rising wages for skilled workers.
Current Account and Banking Sector
According to the IMF, the current account surplus declined to 3.2% of GDP in 2023, reflecting lower oil exports and a strong growth in investment-related imports.
However, this was partly mitigated by a record surplus in the services balance, including a 38% surge in net tourism income. Reserves remain robust, covering 15.8 months of imports and 208% of the IMF’s reserve adequacy metric by end-2023.
The IMF emphasized the strength of the Saudi banking sector. “Stress tests performed by the Financial Sector Assessment Program (FSAP) show that banks as well as non-financial corporates are resilient to shocks, even under severe adverse scenarios,” it said.
IMF Assessment
The IMF Executive Board commended Saudi Arabia for its “its ongoing economic transformation, underpinned by sustained efforts to diversify the economy under Vision 2030.”
They welcomed the robust non-oil economic activity, stable inflation, record-low unemployment, and ample fiscal and external buffers. Furthermore, they supported the recalibration of investment spending, and agreed that the exchange rate peg to the US dollar continues to serve the Saudi economy well and the policy rate should continue to move in line with the Fed’s policy rate.
The IMF Directors also welcomed the findings of the Financial System Stability Assessment that the banking system is on a strong footing and resilient to shocks. They commended the authorities for their strong efforts to enhance the business environment, including by accelerating digitalization and enhancing governance.
Moreover, they acknowledged Saudi Arabia’s commitment to achieving net zero emissions by 2060, highlighting the progress made in renewable energy and energy efficiency.
