The International Monetary Fund (IMF) recently concluded its 2023 Article IV consultations with Saudi Arabia, highlighting significant progress in the Kingdom’s economic transformation under Vision 2030. The IMF noted that fiscal adjustments have allowed for the reprioritization of investments, enhancing modernization and diversification efforts.
Despite geopolitical stability, Saudi Arabia’s economy faced a 0.8% growth contraction in 2023 due to oil production cuts. However, non-oil GDP surged by 3.8%, driven by private consumption and investments. Unemployment reached a record low, with female participation surpassing Vision 2030’s 30% target.
Inflation peaked at 3.4% year-on-year (YoY) in January 2023 but slowed to 1.6% YoY by May, supported by a stronger exchange rate. Rental prices increased by about 10% due to an influx of expatriate workers and redevelopment projects in major cities. Wholesale prices also rose due to higher input costs and wages.
Saudi Arabia’s current account surplus dropped to 3.2% of GDP in 2023, impacted by lower oil exports and higher investment-related imports. However, a record surplus in the services balance, boosted by a 38% increase in net tourism income, partially offset this decline.
The IMF reported that Saudi Arabia’s reserves remain robust, covering 15.8 months of imports and 208% of the IMF’s reserve adequacy metric. Stress tests indicated resilience in the banking and non-financial sectors even under severe scenarios.
Non-oil growth is projected to reach 4.4% in the medium term, supported by strong domestic demand and accelerated project execution. Overall growth is expected to bounce back to 4.7% in 2025, averaging 3.7% annually thereafter. Inflation is anticipated to stay contained, bolstered by the US dollar peg and consistent policies.
The IMF foresees the current account shifting to a deficit due to declining oil prices and high investment-related imports. Risks include global uncertainty, potential overheating from continued investment momentum, and a faster shift away from fossil fuels.
The IMF’s Executive Directors praised Saudi Arabia’s economic reforms, emphasizing the importance of fiscal prudence, financial stability, and ongoing structural reforms for inclusive growth. They supported the exchange rate peg to the US dollar and recommended maintaining alignment with the Federal Reserve’s policy rate.
Directors endorsed recalibrating investment spending to avoid overheating and suggested clarifying Vision 2030’s impact to boost investor confidence. They also recommended enhancing fiscal institutions, mobilizing non-oil revenue, phasing out fuel subsidies with targeted social programs, and containing the wage bill.
The Financial System Stability Assessment confirmed the banking system’s strength and resilience. Directors called for further strengthening of the supervisory framework, including adopting new banking laws and improving anti-money laundering and counter-terrorist financing measures.
Efforts to improve the business environment, digitalization, and governance were commended, along with initiatives to increase investment efficiency and labor market reforms. Directors stressed the need for industrial policies to complement structural reforms and avoid discriminatory practices, while acknowledging Saudi Arabia’s commitment to net-zero emissions by 2060.
Finally, the directors lauded Saudi Arabia’s leadership in multilateral forums and its contributions to global challenges.