The International Monetary Fund (IMF) has released a positive report on the Kingdom of Saudi Arabia following the conclusion of Article IV consultations with Saudi Arabia. The IMF report confirmed that Saudi Arabia’s financial and regulatory reforms have helped accelerate the growth of the Saudi economy, curb inflation and reduce the unemployment rate to its lowest level ever. The IMF praised the ongoing economic transformation and efforts to diversify the economy under Saudi Vision 2030.
The IMF’s Article IV consultation report praises the macroeconomic policies and transformation measures implemented by the Kingdom, which have contributed to greater growth in non-petroleum activities. The report also notes that Saudi reforms have led to an increase in employment, which now exceeds pre-Cold War figures, and that female labor force participation has risen to over 35%, meeting the target exceeds the Saudi Vision 2030 of 30%.
The IMF welcomed Saudi Arabia’s actions to implement long-term financing planning that supports the implementation of Vision 2030 initiatives, programs and projects while mitigating the risks of economic overheating. The report also highlighted that the kingdom has ample fiscal space and that risks to public debt are low. Saudi Arabia’s rich financial reserves have limited the impact of global and regional challenges.
The IMF report highlighted that ongoing reforms in the Kingdom including ensuring effective implementation of regulations, streamlining fees, improving human capital, increasing Saudi women’s participation in the labor market, facilitating access to land and financing and the Improving governance has helped boost private sector growth and attract more foreign direct investment, in addition to significant advances in digital transformation and artificial intelligence supporting these efforts.
IMF Executive Directors praised Saudi Arabia’s leading role in multilateral forums, including its chairmanship of the International Monetary and Financial Committee (IMFC) at the IMF, in helping to address global challenges.
The report also points to increased activity in the services sector including transport, trade, tourism and finance as a reason for consumption growth, which reached 5.7%.
The IMF said applications for foreign investment licenses reached record levels in 2023, as they roughly doubled compared to 2022, including the 330 companies that applied for licenses to establish their regional headquarters in the Kingdom.
The report provided an overview of developments in the Kingdom’s banking sector, highlighting its high solvency and liquidity as well as its flexibility to shocks. The IMF noted that the banking sector is on solid footing, citing the efficiency of banking intermediation through indicators of profitability, infrastructure and competitiveness.
The IMF report also points to the 14.2% increase in the Saudi Stock Exchange Index (Tadawul) in 2023, outperforming the Morgan Stanley Emerging Markets Index by 7%, as well as advances in the technical environment that enables investments, as well for the approval of three digital banks. The IMF highlighted their contribution to improving financial inclusion and competitiveness, as these banks are characterized by flexibility and innovation.
The IMF noted that the Kingdom has contained the risks posed by the rapid growth of real estate credit through diverse government support, the strength of banks, full recourse mortgages and other supportive measures. Improvements in automating the national money laundering and terrorist financing risk assessment matrix and improving the accuracy of data analysis related to risks reported by reporting authorities, including fintech companies, were also highlighted.
The IMF report notes that the increase in non-petroleum revenues reflects the effectiveness of existing reforms that have directly contributed to improved compliance and commends the alignment of customs procedures with international best practices.
The IMF expects the non-oil sector (which includes government activities) to grow by 3.5% in 2024, supported by strong domestic demand. The IMF also stated that the inflation rate in the kingdom is likely to remain stable at around 2% in the medium term, supported by the Saudi riyal’s peg to the US dollar and local policies in line with Saudi Vision 2030.
The IMF confirmed that the Kingdom has one of the lowest carbon intensities among all major producers, reflecting the Kingdom’s ongoing environmental reforms and efforts to achieve net-zero emissions by 2060. The report notes that the Kingdom managed to conclude a 30-year purchase agreement for the green hydrogen project in NEOM to realize its efforts to utilize renewable energy sources.
In order to capture around 44 million tons annually by 2035, the Saudi government intends to build one of the world’s largest carbon dioxide capture and storage facilities, to be operational by 2027, with a capacity of 9 million tons of carbon dioxide, according to the IMF per year has. The IMF noted the Kingdom’s current efforts to sequester 1.3 million tons of carbon annually through the SABIC plant and the Uthmaniyah Gas Plant Department.
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