Saudi Arabia's Economy Grows as it Diversifies

IMF News, September 28, 2023

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Saudi Arabia is implementing reforms to reduce oil dependence, diversify income sources, and enhance competitiveness.
2023 marks the midpoint of Saudi Arabia’s Vision 2030 journey.
Non-oil growth has accelerated since 2021, averaging 4.8 percent in 2022.
Despite lower overall growth reflecting additional oil production cuts, non-oil growth "will remain close to 5 percent in 2023," spurred by strong domestic demand.
Diversification has been driven by improvements in the regulatory and business environment.
New investment deals and licenses grew by 95 percent and 267 percent in 2022, respectively.
The Saudi Investment Fund (PIF) has been deploying capital, including to help stimulate private sector investment.

Ensuring large projects generate returns and boost productivity is vital for sustained economic growth and further diversification.
There is a need to foster a more conducive environment for innovation and to invest in workforce skills that complement the diversification agenda.
Streamlining fees and taxes faced by businesses—particularly at local and city levels—will further boost private sector development.
The PIF’s growing role in the economy should continue to stimulate private sector investment.
Rigorous monitoring and evaluation can help minimize risks from targeted interventions and industrial policies, ensuring these policies (which are not a substitute for broader structural reforms) attain the intended benefits.

Pursue sound macroeconomic policies and maintain the reform momentum, irrespective of developments in oil markets.
Continue reforms that improve the regulatory and business environment to support entrepreneurship and investor protection.
Support private non-oil investment through policy measures that reduce the costs of doing business.
Focus public efforts on maximizing returns and productivity gains from large projects.
Enhance innovation ecosystems and workforce skills aligned with diversification objectives.
Streamline subnational fees and taxes to lower barriers for businesses.
Apply rigorous monitoring and evaluation to targeted interventions and industrial policies to ensure effectiveness.

Amine Mati is an Assistant Director and Sidra Rehman is an Economist. Both are in the IMF’s Middle East and Central Asia Department.