Saudi Arabia to Grow at Fastest Pace in a Decade

IMF News, August 17, 2022

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Gross domestic product is expected to expand by 7.6 percent, the fastest growth in almost a decade, according to the Article IV consultation report.
Inflation is projected to remain contained at 2.8 percent in 2022 as the central bank tightens policy in line with the US Federal Reserve.
Public finances and the external position will strengthen substantially thanks to increased non-oil revenue and higher proceeds from oil exports.
Reserve buffers will remain ample.

Maintaining control of public spending despite higher oil proceeds is important.
There is scope for more targeted social spending.
Improvements in tax policy and revenue administration to raise more taxes from non-oil activities would help support fiscal consolidation.
Managing oil revenues in a sustainable manner, so that spending does not rise and fall in line with the price of oil, would promote fiscal sustainability and prevent a return to previous oil-driven cycles of boom and bust.
Far-sighted budget planning and policies to diversify the economy are recommended.
Reforms to energy prices so that domestic fuel prices converge with international prices would:
- generate fiscal savings, and
- support the authorities’ climate objectives set out in the Saudi Green Initiative.
Ongoing efforts to strengthen social safety nets through targeted schemes would protect the vulnerable from higher energy bills.

With strong central bank supervision, the financial sector remains resilient and systemic risks are low.
Increases in interest rates are expected to have only a limited impact on the Saudi economy in an environment of high oil prices and strong liquidity.
Continued improvements to the framework for financial sector regulation and sustained monitoring of rising mortgage lending are important to prevent risks from materializing.
Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, should continue to focus on high returns and greater private sector involvement, including as it continues to implement “Giga projects”.

Continued implementation of Vision 2030 policies will help diversify and liberalize the economy and pave the way to more stable growth.
The authorities are taking steps to improve the business environment, attract foreign investment and create private-sector employment.
Business registration has been streamlined (a business can be registered in just three minutes).
Reforms have increased the number of industrial facilities and raised female participation in the labor force.
Specific measures supporting female labor force participation include:
- removal of formal restrictions and legislation ensuring equality of employment,
- transport subsidies of up to 80 percent for the cost of a taxi fare,
- employer incentives for hiring Saudi women, and
- childcare support.
The proportion of Saudi women in work has doubled in the past four years to 33 percent, exceeding the 30 percent target set under the 2030 plan and the 27 percent average for the Middle East and North Africa.
Growing digitalization, accelerated during the pandemic through online health services, virtual courts, distance learning, and an online finance platform for public procurement known as Etimad, has the potential to boost productivity given a young population adept at using technology.

Strong near-term growth driven by higher oil prices and production and pro-business reforms: GDP growth of 7.6 percent.
Contained inflation at 2.8 percent in 2022 despite higher imported commodity prices.
Policy priorities include disciplined public spending, tax and revenue administration reform, sustainable management of oil revenues, energy-price reform, strengthened social safety nets, and continued financial-sector oversight.
Sustaining reform momentum under Vision 2030 is crucial for long-term prosperity.

By Amine Mati (Assistant Director) and Sidra Rehman (Economist); August 17, 2022 — Saudi Arabia to Grow at Fastest Pace in a Decade.