IMF Executive Board Concludes 2024 Article IV Consultation with Saudi Arabia
IMF News, September 3, 2024
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- Published: September 3, 2024
Overview
- On July 31, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the 2023 Article IV consultation with Saudi Arabia.
- Saudi Arabia’s economic transformation under Vision 2030 is progressing; a recent fiscal space exercise recalibrated investment spending by reprioritizing projects and through sectoral strategies.
Recent economic developments
- Growth and labor market
- Oil production cuts led to an overall contraction in growth of 0.8 percent in 2023.
- Non-oil GDP grew by 3.8 percent in 2023, driven mostly by private consumption and non-oil investment.
- The unemployment rate reached historic lows; women labor force participation rates remain comfortably above the 30 percent 2030 target.
- Geopolitical events have not had any major impact on the Saudi economy so far.
- Inflation and prices
- Headline inflation peaked at 3.4 percent in January 2023 and receded to 1.6 percent in May 2024.
- Rents are growing at a rate of about 10 percent amid inflows of expatriate workers and large redevelopment plans in Riyadh and Jeddah.
- Wholesale prices have edged up recently, reflecting higher input costs and rising wages for skilled workers.
- External sector and reserves
- The current account surplus narrowed to 3.2 percent of GDP in 2023, mainly reflecting lower oil exports and strong growth in investment-related imports.
- Services balance posted a record surplus, including a 38 percent surge in net tourism income.
- Reserves covered 15.8 months of imports and 208 percent of the IMF’s reserve adequacy metric by end-2023.
- Financial sector
- The banking sector is on a strong footing; FSAP stress tests show banks and non-financial corporates are resilient to shocks, even under severe adverse scenarios.
- Bank credit growth—mainly to the corporate sector—continues to surpass deposit growth despite recent moderation.
- Increased balance sheet interlinkages between financial institutions and the sovereign could amplify systemic shocks, including through fluctuations in oil prices.
Outlook and risks
- Growth projections
- Non-oil growth is projected to reach 4.4 percent in the medium term after moderating in 2024, driven mostly by stronger domestic demand as project implementation picks up.
- The phase-out of oil production cuts is expected to boost overall growth to 4.7 percent in 2025, before averaging 3.7 percent per year thereafter.
- Inflation and current account
- Inflation would remain contained, supported by a credible peg to the U.S. dollar and consistent domestic policies.
- The current account would shift to a deficit, mainly reflecting declining oil prices and strong investment-related imports.
- Risks
- Upside: accelerated implementation of reforms and investments could yield stronger or earlier-than-expected growth dividends.
- Downside: pressures to accelerate investment could heighten overheating risks; other downside risks include slippages in the reform agenda, subdued global activity, financial market volatility, geopolitical events, and non-OPEC+ supply growth.
- Longer-term risk: a quicker shift in demand away from fossil fuels could hamper growth.
Executive Board assessment — key findings and recommendations
- General assessment
- Directors commended Saudi Arabia for ongoing economic transformation, robust non-oil activity, stable inflation, record-low unemployment, and ample fiscal and external buffers.
- Directors agreed that the exchange rate peg to the U.S. dollar continues to serve the Saudi economy well and that the policy rate should continue to move in line with the Fed’s policy rate.
- Fiscal policy and institutions
- Supported the recalibration of investment spending to mitigate overheating risks; recommended making public the main impact of the exercise on Vision 2030 objectives.
- Recommended additional fiscal adjustment to maintain strong buffers and meet intergenerational needs, including efforts to:
- mobilize non-oil revenue;
- phase out remaining fuel subsidies complemented by targeted social programs;
- contain the wage bill.
- Emphasized strengthening fiscal institutions by:
- advancing the roll-out of the Medium-Term Fiscal Framework;
- operationalizing the fiscal rule to delink spending from oil price fluctuations;
- developing an effective Sovereign Asset Liability Management Framework;
- enhancing monitoring and disclosure of contingent liabilities.
- Monetary and financial sector policy
- Welcomed continued use of market-based monetary policy instruments; noted importance of completing the Emergency Liquidity Assistance Framework.
- Welcomed FSAP findings that the banking system is resilient; called for:
- further strengthening the supervisory framework, including swift adoption of the new Banking Law in line with best international practices;
- improvements in the AML/CFT framework.
- Recommended a tighter macroprudential framework if credit growth remains elevated.
- Most Directors supported introduction of a positive neutral countercyclical capital buffer; a few Directors called for an assessment before its introduction.
- Two Directors urged improved systemic risk monitoring of financial sector exposures to giga projects and addressing data gaps.
- Structural reforms and climate
- Commended efforts to enhance the business environment, accelerate digitalization, and enhance governance.
- Recommended increasing investment efficiency and deepening labor market reforms to boost female labor force participation and reduce potential wage gaps.
- Advised that industrial policies remain complementary to structural reform agenda while avoiding discriminatory practices; noted Saudi Arabia remains WTO compliant.
- Acknowledged commitment to achieving net zero emissions by 2060; highlighted progress in renewable energy and energy efficiency and noted some Directors called for additional efforts to support these targets.
- Data and multilateral engagement
- Welcomed improvements in economic data provision and ongoing reforms to close data gaps.
- Commended Saudi Arabia for leadership in multilateral fora, including as Chair of the International Monetary and Financial Committee.
Selected economic indicators (2022–25)
- Population: 32.2 million (2022)
- Quota: SDR 9,992.6 million (2.10% of total)
- Main products and exports: Oil and oil products (77%)
- Key export markets: Asia, U.S., and Europe
- Output
- Real GDP growth: 7.5 (2022); -0.8 (2023); 1.7 (2024); 4.7 (2025)
- Non-oil GDP growth: 5.3 (2022); 3.8 (2023); 3.5 (2024); 4.4 (2025)
- Prices
- CPI Inflation (avg, %): 2.5 (2022); 2.3 (2023); 1.9 (2024); 2.0 (2025)
- Central government finances
- Revenue (% GDP): 30.8 (2022); 30.3 (2023); 29.6 (2024)
- Expenditure (% GDP): 28.2 (2022); 32.3 (2023); 32.9 (2024); 32.4 (2025)
- Fiscal balance (% GDP): -2.0 (2022); -3.3 (2023); -2.9 (2024)
- Public debt (% GDP): 23.9 (2022); 26.2 (2023); 28.7 (2024); 30.0 (2025)
- Non-exported oil primary balance (% Nonoil GDP): -29.4 (2022); -33.0 (2023); -32.4 (2024); -30.4 (2025)
- Money and credit
- Broad money (% change): 8.1 (2022); 7.6 (2023); 8.8 (2024); 9.0 (2025)
- Credit to the private sector (% change): 12.6 (2022); 10.0 (2023); 10.1 (2024); 9.7 (2025)
- Balance of payments
- Current account (% GDP): 13.7 (2022); 3.2 (2023); -0.1 (2024); -1.1 (2025)
- FDI (% GDP): 1.2 (2022); 1.3 (2023); 1.5 (2024)
- Reserves (months imports)1: 18.1 (2022); 15.8 (2023); 14.1 (2024); 13.1 (2025)
- External debt (% GDP): 23.8 (2022); 28.1 (2023); 32.2 (2024)
- Exchange rate
- REER (% change)2: 4.2 (2022); 1.6 (2023); …
- Unemployment rate
- Overall (% total labor force): 4.9
- Nationals (% total labor force): 8.5
IMF Communications Department — September 3, 2024
