Saudi Arabia’s economy demonstrated “strong resilience to external shocks,” with a favorable outlook despite global uncertainty and emerging deficits, supported by strong policies and reform momentum, the IMF Executive Board said in a statement yesterday following its annual Article IV consultations.

By the numbers: Non-oil GDP grew 4.5% in 2024, offsetting oil production cuts that pulled oil GDP down by 4.4%, lowering overall growth to 2%. Unemployment also fell to a record low and inflation remained contained, though the current account shifted to a small deficit of 0.5% of GDP, down from a 2.9% surplus in 2023. Meanwhile, the banking sector remains robust, and foreign reserves are ample at USD 415 bn.

REMEMBER- The IMF upgraded Saudi Arabia’s GDP growth forecast by 0.6 percentage points to 3.6% for 2025 and by 0.2 percentage points to 3.9% for 2026 in its latest World Economic Outlook report published last week. The fund also amended its oil price outlook, now expecting a more moderate drop to an average of USD 68.18 per barrel in 2025, followed by a slower decline to USD 64.33 in 2026.

The near-term outlook is vulnerable to downside pressures from weaker oil demand, reduced government spending, and regional instability. However, growth could be boosted by higher oil production, increased Vision 2030 investments, or a rise in oil prices from a stronger global recovery.

But the medium term is more stable, thanks to strong domestic demand from Vision 2030 projects that are expected to keep non-oil growth above 3.5% and accelerate overall real GDP growth to 3.9% by 2026. Inflation is forecasted to remain contained; however, the current account deficit is projected to continue from investment-linked imports and remittance outflows, which will force more external borrowing. Reserve buffers should remain sufficient.

Recommendations for the Kingdom: The IMF Board recommended a countercyclical fiscal policy in the near term, followed by gradual consolidation through tax and subsidy reforms. It praised Saudi Arabia’s strengthened fiscal institutions, transparency, and well-capitalized banking sector, endorsing the currency peg to the USD while emphasizing sustaining Vision 2030 structural reforms to drive diversification and private sector investment regardless of oil prices.

Tags: