Saudi Gazette report

RIYADH — Saudi Arabia has won accolades from the International Monetary Fund (IMF) for its tremendous progress and sustained efforts to advance its economic transformation, calling it as "unprecedented." Saudi Arabia has succeeded in pushing forward modernization and diversification efforts, the IMF said while projecting 4.4 percent medium term growth in the non-oil sector.

This was revealed in a press conference held online by IMF's Assistant Director, Mission Chief for Saudi Arabia and Head GCC Division Amine Mati, to present the highlights of the Fund’s annual report issued on Wednesday. Mati said that the Saudi economy has made tremendous progress within the framework of the unprecedented economic transformation, as it has succeeded in pushing forward modernization and diversification efforts in accordance with the Vision 2030.

According to the report, the Kingdom recently conducted an analytical study on fiscal space, which helped recalibrate investment spending in accordance with Vision 2030 by prioritizing projects and adopting integrated sector strategies. The Executive Board of the International Monetary Fund supported “recalibrating investment spending, as it helped reduce the risks of economic overheating.

Announcing the direct impact of this on Vision 2030 goals will help highlight the government’s priorities and support investor expectations, the IMF report pointed out. Saudi Finance Minister Mohammed Al-Jadaan said in April this year that the Kingdom would adjust its Vision 2030 plan to transform its economy as needed.

The IMF pledged its support for the Saudi government's move towards recalibrating investment spending. It expected the debt-to-GDP ratio to rise to about 36 percent of GDP by 2029, and said that this ratio remains comfortably below the debt threshold of 40 percent of GDP set by the Saudi authorities. “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.

The overall growth is expected to reach 4.7 percent in 2025, due to the phase-out of oil production cuts. At the same time, inflation would remain under control due to the credible peg to the US dollar and consistent domestic policies, it said while noting that the unemployment rate in Saudi Arabia hit an all-time low, with women participation in the labor force surpassing the 30 percent target of Vision 2030. The IMF specially noted that geopolitical events have not affected the Saudi economy.

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 percent in 2023, the non-oil GDP grew by a robust 3.8 percent. This was supported by private consumption and non-oil investment.

The IMF noted that the headline inflation has slowed down rapidly. Inflation rates dropped sharply from 3.4 percent in January 2023 to 1.6 percent 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 percent rate. The wholesale prices have also edged up recently, reflecting higher input costs and rising wages for skilled workers.

The IMF report noted that the current account surplus declined to 3.2 percent 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 percent 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," it said.

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.

The IMF Executive Board lauded Saudi Arabia for “its ongoing economic transformation, underpinned by sustained efforts to diversify the economy under Vision 2030.” The board welcomed the robust non-oil economic activity, stable inflation, record-low unemployment, and ample fiscal and external buffers. It also 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 acknowledged Saudi Arabia’s commitment to achieving net zero emissions by 2060, highlighting the progress made in renewable energy and energy efficiency. They 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 Saudi authorities for their strong efforts to enhance the business environment, by accelerating digitalization and enhancing governance.