Saudi Arabia: Concluding Statement of the 2025 Article IV Mission

IMF News, June 26, 2025

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Published: June 26, 2025

Recent economic developments

Non-oil real GDP grew by 4.2 percent in 2024, driven primarily by private consumption and non-oil private investment; retail, hospitality, and construction led growth.
Oil output held at 9 million barrels per day (mb/d), the lowest level since 2011, contributing to a 4.4 percent decline in oil GDP and overall real growth of 1.8 percent in 2024.
Q1 2025 composite PMI indicates sustained activity; latest Q1 GDP estimate shows non-oil activities expanding by 4.9 percent year-on-year.
Unemployment for Saudi nationals declined to a record low of 7 percent in 2024; the Vision 2030 target was revised down to 5 percent.
Private sector employment rose by 12 percent on average in 2024; public sector hiring slowed reflecting redeployment to non-government entities.
Headline inflation picked up to 2.3 percent in April 2025; rent inflation decelerated for the 6th consecutive month to 8.1 percent y-o-y (lowest annual rise since February 2023). Real wages remained stable with some pickup for highly skilled workers.
Current account shifted from a surplus of 2.9 percent of GDP in 2023 to a deficit of 0.5 percent of GDP in 2024, reflecting lower oil export proceeds, higher machinery and equipment imports, and stronger remittance outflows—offset partially by a surge in tourism inflows.
SAMA net foreign assets (NFA) stabilized at $415 billion by end-2024—equivalent to 15 months of imports and 187 percent of the IMF’s reserve adequacy metric.
Overall fiscal deficit widened to 2.5 percent of GDP in 2024, about 0.8 percentage points above the budgeted target, due to additional project financing and flat oil revenue.
Non-oil primary deficit improved, decreasing by 0.6 percentage points of GDP in 2024 compared to 2023.
Central government debt rose to 26.2 percent of GDP in 2024; net debt is approximately 17 percent of GDP.
Saudi Arabia became the largest emerging market dollar debt issuer in 2024.

Economic outlook and risks

Non-oil real GDP growth projected at 3.4 percent in 2025 (about 0.8 percentage points lower than in 2024).
Overall GDP growth projected at 3.5 percent in 2025 and 3.9 percent in 2026, stabilizing at approximately 3.3 percent over the medium term.
Non-oil growth expected to approach 4 percent in 2027 and stabilize at 3.5 percent by 2030.
Inflation expected to remain anchored around 2 percent.
Current account deficit projected to peak at about 3.9 percent of GDP by 2027 before converging to about 3.4 percent of GDP in 2030.
International reserve coverage projected to remain adequate at about 11-12 month import coverage over the medium term; foreign assets held by the Public Investment Fund (PIF) and other government-related entities provide additional buffers.
Downside risks: weaker oil demand, escalation of global trade tensions, deepening geoeconomic fragmentation; consequences include higher fiscal deficits, higher debt, and costlier financing.
Upside scenarios: higher-than-expected oil production/prices and accelerated reform implementation could produce stronger or earlier growth dividends.

Fiscal policy — findings and recommendations

Findings:

2025 fiscal stance expected to result in an overall fiscal deficit of 4.3 percent of GDP—twice the budget target—driven by spending overruns and lower oil prices with minimal Aramco dividends.
The non-oil primary balance shows a 3.6 percentage points of non-oil GDP improvement, interpreted as frontloading part of the adjustment required by 2030.
Central government deposits are currently around 9¼ percent of GDP.

Recommendations and medium-term strategy:

Maintain a higher-than-budgeted fiscal stance in 2025 to avoid procyclicality and to prevent exacerbating the growth impact of lower oil prices.
Over 2026-30, generate an additional 3.3 percent of non-oil GDP mainly through:
- Non-oil revenue mobilization: increase tax rate on underdeveloped land, introduce a tax on vacant land, broaden the VAT base (e.g., for e-commerce transactions), strengthen revenue administration; do not renew the temporary tax penalty waiver when it expires in June.
- Remove energy subsidies: welcome doubling of diesel prices since January 2024; fuel subsidies reduced to 3½ percent of GDP (down from 5½ percent in 2022); accelerate subsidy reductions, including removing cap on gasoline prices and scale up Damaan social support program.
- Rationalize other spending: prioritize reducing current expenditures with low fiscal multipliers while preserving growth-enhancing infrastructure; increase transparency on spending prioritization and alignment with investment plans.
Contingency planning: partial drawdown of fiscal buffers in the event of a temporary oil price shock; identify projects that can be extended or cut.
Strengthen fiscal institutions: enhance the Medium-Term Fiscal Framework, better integrate multiyear projections into annual budgets, operationalize and ensure compliance with an expenditure-based fiscal rule.
Debt management and SALM: assess trade-offs between using central government deposits and new bond issuances; operationalize a comprehensive SALM framework and publish it alongside the budget statement; closely monitor contingent liabilities from giga projects, debt guarantees, and PPPs.
Under baseline, overall fiscal deficit expected to decline to approximately 3.3 percent of GDP by 2030; non-oil primary deficit to shrink by about 4.2 percent of non-oil GDP from 2025 to 2030. Public debt-to-GDP ratio projected to rise to about 42 percent by 2030.

Monetary and exchange rate policy

SAMA has refined its liquidity management framework to reduce liquidity volatility.
Bank funding conditions influenced by persistent double-digit credit growth and periodic spikes in the SAIBOR-SOFR spread.
Recommendation: SAMA’s market-based monetary operations should smooth short-term liquidity imbalances without fueling asset/credit growth.
Recent data-sharing arrangement between SAMA and the Ministry of Finance on expected government transactions should improve liquidity forecasting and needs effective implementation.
Further enhancements to the reserve requirement framework would strengthen liquidity management and monetary policy transmission.
The currency peg to the U.S. dollar remains appropriate and should be supported by SAMA’s policy rate alignment with the Fed’s policy rate.

Financial sector policies — findings and recommendations

Findings:

Banking sector resilient with strong capitalization and profitability: solvency ratio at 19.6 percent as of end-2024; average return on assets of 2.2 percent in 2024.
Non-performing loans at their lowest levels since 2016.
Liquidity indicators adequate but liquid assets to short-term liabilities ratio declining; regulatory loan-to-deposit ratio on an upward trend.
Strong credit growth (mostly to corporates and for mortgages) outpacing deposit growth, prompting increased external borrowings (bonds, syndicated loans, certificates of deposit).
Banks’ Net Foreign Assets (NFA) turned negative in 2024 for the first time since 1993.
Banks’ exposure to foreign exchange risk remains low.

Recommendations:

Address strong credit growth and associated funding pressures to mitigate systemic risks:
- Continue review and strengthening of prudential toolkits to counter persistent double-digit credit growth and credit-to-deposit growth gap.
- Set prudential requirements commensurate with evolving risks.
- Narrow loan-to-value and debt burden ratios; tighten loan-to-deposit ratio to discourage excessive short-term foreign exchange funding.
- Consider setting Liquidity Coverage Ratio and Net Stable Funding Ratio in foreign currency as regulatory requirements if warranted.
Welcome the introduction in May 2025 of a 100 basis points countercyclical capital buffer, effective within a year.
Support SAMA’s efforts to enhance regulatory and supervisory frameworks:
- New Banking Law submitted for legislative approval.
- Refinement of a risk-based supervisory framework and introduction of monitoring for large construction and infrastructure projects.
- Operationalization of bank resolution function and completion of crisis management framework including emergency liquidity assistance.
- Improvements in AML/CFT supervision, including thematic inspections.
Deepen capital markets to diversify funding and reduce reliance on bank financing:
- Investment Law effective February 2025, and ongoing pension and savings reforms expected to improve market liquidity and foreign participation.
- Greater use of asset-backed securities to create new asset classes and expand funding.
- Capital market deepening would improve monetary policy transmission.

Structural policies

Continued structural reform is essential to sustain non-oil growth and diversification amid heightened uncertainty.
Since 2016, wide-ranging reforms implemented in business regulations, governance, labor, and capital markets.
New 2025 laws (updated Investment Law, Labor Law amendments, new Commercial Registration Law) will enhance contractual certainty and support productivity gains.
Priority reform areas:
- Strengthen anti-corruption framework, building on Ultimate Beneficial Ownership Rules and By Laws of Nazaha.
- Enhance human capital by aligning skills with labor market needs.
- Improve access to finance and foster digitalization, including integration of AI in government services.
- Strengthen fiscal institutions to support Vision 2030 objectives.
Industrial policy guidance:
- Targeted interventions by PIF and public entities should complement, not replace, structural reforms and avoid crowding out private investment.
- Interventions should focus where private investment is limited, market failures exist, or where catalytic roles attract private capital.
- Industrial policies should include clear exit criteria, claw-back mechanisms, and sunset clauses.

Concluding statement: mission team thanks Saudi Arabian authorities and non-government contacts for collaboration and hospitality. Numbers referred in percent of GDP are based on the authorities’ new rebasing GDP published in May 2025; the new methodological update is generally consistent with international best practices and the UN’s system of national accounts.

Source: Saudi Arabia: Concluding Statement of the 2025 Article IV Mission (June 26, 2025).