IMF Executive Board Concludes 2022 Article IV Consultation with Saudi Arabia
IMF News, August 17, 2022
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- Published: August 17, 2022
Overview and recent performance
- On July 27, 2022, the Executive Board of the International Monetary Fund (IMF) concluded the 2022 Article IV consultation with Saudi Arabia.
- Saudi Arabia is recovering strongly following a deep pandemic-induced recession, supported by liquidity and fiscal support, reform momentum under Vision 2030, and high oil prices and production.
- Growth, inflation, fiscal, and external positions have improved as pandemic effects receded and oil production/prices strengthened.
Growth, inflation, and financial sector
- Real GDP growth:
- 2020: -4.1
- 2021: 3.2
- 2022 (Proj.): 7.6
- 2023 (Proj.): 3.7
- Non-oil GDP growth:
- 2020: -2.5
- 2021: 4.9
- 2022 (Proj.): 4.2
- 2023 (Proj.): 3.8
- CPI Inflation (avg, %):
- 2020: 3.4
- 2021: 3.1
- 2022 (Proj.): 2.8
- 2023 (Proj.): 2.2
- Banking sector:
- Banks remain liquid and well capitalized.
- Profitability rebounded strongly in 2021 as net interest margins recovered.
- Credit to the private sector expanded by 15.4 percent in 2021, mainly driven by mortgages and SME lending.
- Financial markets surged earlier in 2022 but most of that surge was reversed over the two months prior to the Board meeting, in line with recent global developments.
Fiscal and external positions
- Central government finances (percent of GDP):
- Revenue:
- 2020: 29.6
- 2021: 30.9
- 2022 (Proj.): 31.8
- 2023 (Proj.): 32.0
- Expenditure:
- 2020: 40.8
- 2021: 33.2
- 2022 (Proj.): 26.4
- 2023 (Proj.): 27.1
- Fiscal balance:
- 2020: -11.2
- 2021: -2.3
- 2022 (Proj.): 5.5
- Public debt:
- 2020: 32.4
- 2021: 30.0
- 2022 (Proj.): 24.3
- 2023 (Proj.): 24.5
- Non-exported oil primary balance (% Nonoil GDP):
- 2020: -37.6
- 2021: -29.0
- 2022 (Proj.): -24.8
- 2023 (Proj.): -22.0
- External sector:
- Current account (% GDP):
- 2020: -3.2
- 2021: 5.3
- 2022 (Proj.): 17.2
- 2023 (Proj.): 13.8
- Reserves (months imports):
- 2020: 25.3
- 2021: 22.1
- 2022 (Proj.): 26.8
- External debt (% GDP):
- 2020: 33.8
- 2021: 34.4
- 2022 (Proj.): 28.5
- 2023 (Proj.): 29.0
- The overall fiscal balance increased by almost 9 percentage points of GDP to a 2.3 percent of GDP deficit in 2021, mainly reflecting oil revenues and non-oil tax revenues supported by a rebounding economy and the full-year effect of the tripling of the VAT rate to 15 percent in mid-2020.
- Higher oil prices and stepped-up oil production improved the current account by 8.5 percentage points in 2021, registering a surplus of 5.3 percent of GDP.
- Reserves increased, net foreign assets declined but remained at 22 months of imports in 2021 and are expected to increase significantly in the wake of rising oil export revenues over the medium term.
Risks to the outlook and scenarios
- Upside risks:
- Successful implementation of the National Investment Strategy and labor market reforms.
- Further increases in oil production.
- Downside risks:
- Pressures to spend oil windfalls and deviate from the reform agenda.
- Inflationary pressures.
- Another COVID surge (domestic or abroad).
- Lower oil prices due to lower global activity if the war in Ukraine has lasting effects.
- An abrupt slowdown in China.
- Overall, risks to the outlook are assessed as balanced.
Executive Board assessment and policy recommendations
- Directors agreed with the thrust of the staff appraisal and welcomed the substantial growth rebound, contained inflation, and strengthened external position.
- Key policy recommendations and observations:
- Continue implementing the Vision 2030 reform agenda to diversify the economy and promote strong, inclusive, and greener growth.
- Sustain fiscal discipline and adhere to budget ceilings.
- Sustain energy price reforms, including reconsideration of the cap on gasoline prices; authorities committed to reach market energy prices by 2030.
- Strengthen non-oil revenue mobilization through tax policy measures—including by maintaining the current VAT rate—and enhance revenue administration.
- Strengthen social safety nets through targeted schemes to help sustain energy price reforms.
- Continue improving public financial management and fiscal transparency.
- Complete work to establish a sovereign-asset liability management framework given the increasing role of the Public Investment Fund.
- Develop a fiscal rule based on a long-term fiscal anchor with broader coverage of the public sector to reinforce fiscal sustainability.
- Continue progress toward implementing Basel III standards and enhance supervisory scrutiny of credit risks, including from rising mortgage lending.
- Continue strengthening the AML/CFT framework.
- Maintain the exchange rate peg to the U.S. dollar as it continues to serve the economy well given the current economic structure.
- Continue labor market reforms (noting the doubling of female labor force participation) and efforts to improve the regulatory and business environment, promote private investment, boost productivity, and address corruption.
- Implement specific steps to achieve climate goals under the Green Initiative.
- Continue improving data quality and availability.
Other selected indicators and country facts
- Population: 34.1 million (2021)
- Quota: SDR 9,992.6 million (2.10% of total)
- Main products and exports: Oil and oil products (73%)
- Key export markets: Asia, U.S., and Europe
- Money and credit:
- Broad money (% change):
- 2020: 8.3
- 2021: 7.4
- 2022 (Proj.): 8.5
- Credit to the private sector (% change):
- 2020: 14.0
- 2021: 15.4
- 2022 (Proj.): 13.4
- 2023 (Proj.): 12.8
- REER (% change):
- 2020: 1.0
- 2021: 0.9
- 2022 (Proj.): 4.8
- Unemployment rate:
- Overall (% total labor force)2:
- 2020: 6.9
- 2021: 6.0
- Nationals (% total labor force)2:
- 2020: 12.6
- 2021: 11.0
- 2022 (latest available): 10.1
IMF Press Release No. 22/286 — August 17, 2022