Saudi economy edging closer to reducing dependence on oil, IMF official says

Government-led reforms and the growth of private investment in new sectors will help support non-oil economic growth in Saudi Arabia amid an expected sharp slowdown in overall growth this year, a senior IMF official said.

The Saudi economy grew 8.7 per cent last year, as high oil prices boosted revenue and led to the kingdom’s first budget surplus in almost 10 years.

The IMF projects that Saudi GDP growth will more than halve, to 3.1 per cent, this year, in line with the forecast for Middle East oil exporters. The forecast, however, is higher than the 2.6 per cent growth rate that the IMF projected in January.

Several OPEC+ member states, led by Saudi Arabia, the world’s top crude exporter, recently announced surprise cuts to oil production from May, initially driving up global prices, although global worries and an uncertain demand outlook are weighing on prices.

“This year, with the implementation of the new OPEC+ quotas, we expect the oil sector to slow down,” Jihad Azour, director for the Middle East and Central Asia at the IMF, told Reuters, adding that the impact on the kingdom’s budget depended on prices.

“The drop in production will affect growth because output will decline, but revenues could grow and this could have a positive impact on both external accounts, the reserves, and the budget deficit,” he said.

“Clearly, the strategy over the last five to six years has helped the Saudi economy, and also the public finances, to be less dependent on the cycle of oil.”

Saudi Arabia has embarked on an ambitious economic transformation plan known as Vision 2030, investing billions to diversify into sectors such as tourism, launch massive infrastructure projects, and develop the financial and private sectors.

“The size of the non-oil economy is growing and it’s mainly driven by the private sector,” Azour said.