RIYADHSaudi Arabia, September 4, 2024 /PRNewswire/ — The International Monetary Fund (IMF) has issued a positive report on the Kingdom of Saudi Arabia following the conclusion of the Article IV consultation with Saudi Arabia. The IMF report confirms that Saudi Arabia’s financial and regulatory reform program has helped accelerate growth in the Saudi economy, contain inflation, and reduce unemployment to record lows. The IMF commended the ongoing economic transformation and efforts to diversify the economy under Saudi Vision 2030.
The IMF’s Article IV consultation report commended the Kingdom’s macroeconomic policies and transformational changes, which have helped strengthen growth in non-oil activities. The report also noted that Saudi reforms have led to an increase in employment, which now exceeds pre-pandemic figures, and that the female labor force participation rate has increased to over 35%, surpassing the 30% target set by Saudi Vision 2030.
The IMF welcomed Saudi Arabia’s steps to carry out long-term financial planning that supports the implementation of Vision 2030 initiatives, programs, and projects, while mitigating risks of overheating. The report also highlights that the Kingdom’s fiscal space is ample and sovereign debt risks are low, adding that Saudi Arabia’s ample financial reserves have limited the impact of global and regional challenges.
The IMF report highlighted that ongoing reforms in the Kingdom – including ensuring effective implementation of regulations, streamlining fees, strengthening human capital, increasing the participation of Saudi women in the labor market, facilitating access to land and finance, and improving governance – have contributed to strengthening private sector growth and attracting more foreign direct investment, in addition to significant progress in digital transformation and artificial intelligence that support these efforts.
IMF Executive Directors commended Saudi Arabia’s leadership in multilateral fora, including its chairmanship of the IMF’s International Monetary and Financial Committee (IMFC), which contributes to efforts to address global challenges.
The report also notes increased activity in the services sector – including transport, trade, tourism and finance – as consumption growth reached 5.7%.
The IMF said applications for foreign investment licenses reached record levels in 2023, roughly doubling from 2022, including 330 companies that applied for licenses to establish their regional headquarters in the Kingdom.
The report reviews the evolution of the banking sector in the Kingdom, highlighting its high levels of solvency and liquidity, as well as its flexibility in the face of shocks. The IMF found that the banking sector is on solid foundations and also noted the effectiveness of banking mediation, according to indicators of profitability, infrastructure and competitiveness.
The IMF report also notes the rise of the Saudi Stock Exchange Index (Tadawul) by 14.2% in 2023, outperforming the Morgan Stanley Emerging Markets Index by 7%, while noting the progress in the technical environment enabling investment, as well as the licensing of three digital banks. The IMF highlighted their contribution to improving financial inclusion and competitiveness, as these banks are characterized by their flexibility and innovation.
The IMF highlighted the Kingdom’s control of risks arising from the rapid growth of real estate loans, thanks to various government support, the soundness of banks, full recourse mortgages and other support measures. It also highlighted improvements in the automation of the national money laundering and terrorist financing risk assessment matrix and the improvement of the accuracy of the analysis of risk data received from reporting entities, including fintech companies.
The IMF report notes that the increase in non-oil revenues reflects the effectiveness of existing reforms, which have directly contributed to improving compliance, welcoming the alignment of customs procedures with international best practices.
The IMF expects the non-oil sector (which includes government activities) to grow by 3.5% in 2024, supported by strong domestic demand. The IMF also said that the inflation rate in the Kingdom is likely to remain stable at around 2% over the medium term, supported by the peg of the Saudi riyal to the US dollar and local policies in line with Saudi Vision 2030.
The IMF confirmed that the Kingdom has one of the lowest carbon intensity levels among all major producers, thanks to ongoing environmental reforms and the Kingdom’s efforts to achieve net zero by 2060. The report notes that the Kingdom has managed to secure a 30-year purchase agreement for the green hydrogen project at NEOM, in order to materialize its efforts in using renewable energy sources.
In order to sequester approximately 44 million tons per year by 2035, the IMF noted that the Saudi government intends to build one of the world’s largest carbon capture and storage plants, which will be operational by 2027, with a capacity of 9 million tons of carbon dioxide per year. The IMF noted the Kingdom’s current efforts to sequester 1.3 million tons of carbon per year through the SABIC plant and the Uthmaniyah Gas Plant Department.
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