IMF heralds Saudi Arabia’s ‘unprecedented economic transformation’ in brilliant report｜Arab News Japan

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RIYADH: Saudi Arabia’s “unprecedented economic transformation” is progressing successfully thanks to the government’s prudent policies and successful diversification efforts, according to the International Monetary Fund.

In a report focusing on the Kingdom’s changing economic landscape, the organization highlighted growing domestic demand, ongoing financial reforms and environmental policies as strengths.

The findings come just days after the Organization for Economic Co-operation and Development released figures showing Saudi Arabia’s economy grew above the G20 average in the first three months of the year.

In a statement at the end of the IMF’s official visit to the Kingdom, the organization forecast that Saudi Arabia’s overall GDP growth would accelerate to around 4.5% in 2025 before stabilizing at 3.5% annually in the medium term.

It forecast non-oil growth to reach 3.5 percent in 2024, “before accelerating in 2025.”

He added: “Oil production is projected to decline by 4.6 percent in 2024 but increase by 5.1 percent in 2025, reflecting the extension of oil production cuts into 2024 and a gradual increase to 10 mb /d in 2025”

Reflecting on the transformation policies undertaken by the Saudi Arabian government, the IMF noted that “efforts to diversify the economy have begun to bear fruit.”

The report added: “Building on these successes, it will be important to maintain growth momentum beyond oil, maintain financial sector stability, further reduce the risk of overheating, reverse declining total factor productivity and ensure intergenerational equity.”

The IMF welcomed the “recent recalibration” of financial requirements related to the Vision 2030 goals and also praised the Kingdom’s drive to become a haven for private sector development.

“Reforms to improve Saudi Arabia’s business environment and attractiveness for foreign investment are progressing well,” the IMF said, noting that Saudi Arabia has climbed 15 notches in two years in the IMD Global Competitiveness Index to rank 17th in 2023 position in the world.

“Ongoing work to increase human capital through the Human Capacity Development Program, further increases in women’s participation in the labor market, significant progress on digital transformation and AI readiness, streamlining levies and levies, promoting access to land and finance, and stronger governance, would contribute further development, enhance private sector development, help attract more FDI and contribute to increasing total factor productivity,” the report added.

The IMF described Saudi Arabia’s financial sector as being on “strong fundamentals”, noting that bank lending growth – mainly to the corporate sector – continues to outpace deposit growth and is expected to remain around 10% in 2024.

“SAMA’s continued efforts to modernize its regulatory and supervisory framework are critical to safeguarding financial stability,” the report said, adding: “SAMA should continue to use macroprudential tools to address possible risks arising from the credit boom.”

The report also highlighted Saudi Arabia’s environmental initiatives, stating that the Kingdom “remains committed” to achieving net zero emissions by 2060.

“Authorities continue to invest in renewable energy, energy efficiency, clean hydrogen and carbon capture technologies,” the IMF said, adding: “Eliminating energy subsidies would encourage energy conservation and improve the return on investment in renewable energies. Increasing the active green finance portfolio – including through the implementation of the green finance framework announced in March 2024 and through the inaugural issuance of green sovereign bonds planned for this year – would be key to mobilizing private capital.