IMF heralds Saudi Arabia’s ‘unprecedented economic transformation’ in glowing report

Saudi Arabia’s “unprecedented economic transformation” is progressing well thanks to prudent government policies and successful diversification efforts, according to the International Monetary Fund.

In a report focusing on the changing economic landscape of the Kingdom, the organization highlighted growing domestic demand, ongoing financial reforms, and environmental policies as areas of strength.

The findings comes just days after the Organisation for Economic Co-operation and Development released figures showing that Saudi Arabia’s economy witnessed growth above the G20 average in the first three months of the year.

In a release to mark the the end of an official visit to the Kingdom by the IMF, the organization projected Saudi Arabia’s overall GDP growth will accelerate to around 4.5 percent in 2025 before stabilizing at 3.5 percent per year over the medium term.

It forecast non-oil growth to reach 3.5 percent in 2024 “before picking up in 2025 onwards.”

It added: “Oil output is projected to contract by 4.6 percent in 2024 but increase by 5.1 percent in 2025, reflecting an extension of oil production cuts in 2024 and a gradual recovery to 10 mbpd in 2025.”

Reflecting on the transformation policies undertaken by the Saudi government, the IMF noted that “Efforts to diversify the economy have started to bear fruit.”

The report added: “Building on these successes, it will be important to sustain the non-oil growth momentum, maintain financial sector stability, continue mitigating risks of overheating, reverse declining total factor productivity and ensure inter-generational equity.”

The IMF welcomed the “recent recalibration” of funding requirements associated with the Vision 2030 objectives, and also praised the Kingdom’s drive to become a haven for private sector development.

“Reforms to enhance Saudi Arabia’s business environment and attractiveness for foreign investment are progressing well,” said the IMF, noting that Saudi Arabia climbed 15 notches in the IMD’s World Competitiveness ranking in two years, obtaining the 17th position globally in 2023.

“Ongoing work to boost human capital through the Human Capability Development program, further increases in female labor force participation, significant strides in digital transformation and AI preparedness, streamlining of fees and levies, promotion of access to land and finance, and stronger governance would further enhance private sector growth, help attract more FDI, and contribute to total factor productivity growth,” the report added.

The IMF described Saudi Arabia’s financial sector as being on a “strong footing,” noting that bank credit growth – mainly to the corporate sector – continues to surpass deposit growth and is expected to remain at around 10 percent in 2024.

“The continued efforts by SAMA to modernize the regulatory and supervisory frameworks are key to safeguarding financial stability,” said the report, adding: “SAMA should continue using macroprudential tools to forestall possible risks stemming from a lending boom.”

The report also noted Saudi Arabia’s environmental initiatives, saying that the Kingdom “remains committed” to achieving net zero emissions by 2060.

“The authorities continue to invest in renewable energy, energy efficiency, clean hydrogen, and carbon capture technologies,” said the IMF, adding: “Eliminating energy subsidies would incentivize energy conservation and improve returns on investment in renewable energies. Augmenting the active green finance portfolio—including through the implementation of the Green Finance framework announced in March 2024 and by an inaugural sovereign green bond issuance planned for this year—would be critical for mobilizing private capital.”