IMF Commends Saudi Arabia's Economic Reforms And Accelerated Growth

The International Monetary Fund (IMF) recently issued a positive report on Saudi Arabia following the conclusion of Article IV consultations. The IMF highlighted that Saudi Arabia's financial and regulatory reforms have accelerated economic growth, contained inflation, and reduced unemployment to historic lows. The report praised the ongoing economic transformation and diversification efforts under Saudi Vision 2030.

The IMF noted that Saudi reforms have led to increased employment, surpassing pre-COVID levels. Women's participation in the labour market has risen to over 35%, exceeding the Vision 2030 target of 30%. These reforms have also enhanced non-oil sector growth, with significant progress in digital transformation and artificial intelligence supporting these efforts.

The IMF welcomed Saudi Arabia's long-term financing planning, which supports Vision 2030 initiatives while mitigating overheating risks. The Kingdom's fiscal space is strong, with low sovereign debt risks and abundant financial reserves limiting the impact of global challenges. The IMF also commended Saudi Arabia's leadership role in multilateral fora, including its chairmanship of the International Monetary and Financial Committee (IMFC).

The report reviewed banking sector developments, highlighting strong solvency and liquidity levels. The sector's flexibility to shocks was noted, along with efficient banking mediation based on profitability, infrastructure, and competitiveness indicators. The rise in the Saudi Stock Exchange (Tadawul) index by 14.2% in 2023 surpassed the Morgan Stanley Emerging Markets Index of 7%.

The IMF stressed that ongoing reforms—such as effective regulation implementation, fee streamlining, human capital enhancement, increased female labour market participation, land and financing access facilitation, and governance improvements—have boosted private sector growth and foreign direct investment. Foreign investment license applications reached record levels in 2023, nearly doubling from 2022.

Sectoral Developments

The IMF noted increased activity in services sectors like transportation, trade, tourism, and finance as consumption growth reached 5.7%. The Kingdom's containment of real estate lending risks through diverse government support measures was also highlighted. Improvements in automating the national assessment matrix for money laundering and terrorist financing risks were mentioned.

The report praised the alignment of customs procedures with international best practices. Non-oil revenues have increased due to effective reforms enhancing compliance. The non-oil sector is expected to grow by 3.5% in 2024, driven by strong domestic demand.

Environmental Initiatives

The IMF confirmed that Saudi Arabia has one of the lowest carbon intensity levels among major producers due to ongoing environmental reforms aiming for net zero by 2060. The Kingdom secured a 30-year purchase agreement for NEOM's green hydrogen project to utilise renewable energy sources.

To sequester approximately 44 million tons annually by 2035, Saudi Arabia plans to build one of the world's largest carbon capture and storage plants by 2027 with a capacity of 9 million tons annually. Current efforts include sequestering 1.3 million tons annually through SABIC Plant and Uthmaniyah Gas Plant Department.

Financial Inclusion

The licensing of three digital banks has enhanced financial inclusion and competitiveness due to their flexibility and innovation. The IMF noted that these banks contribute significantly to financial inclusion efforts.

The IMF expects inflation in Saudi Arabia to remain stable at around 2% over the medium term due to local policies consistent with Vision 2030 and the Riyal's peg to the US dollar.

Saudi Arabia continues its path towards economic diversification under Vision 2030 while maintaining robust fiscal health and advancing environmental goals.

With inputs from SPA