Saudi economy getting closer to lowering reliance on oil, says IMF official

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Government-led reforms and the expansion of private investment in new sectors will boost Saudi Arabia’s non-oil economic growth despite an anticipated severe slowdown in overall growth this year, according to a senior IMF official.

Due to strong oil prices that increased revenue and resulted in the kingdom’s first budget surplus in over ten years, the Saudi economy rose by 8.7% last year.

According to the IMF’s estimation, Saudi Arabia’s GDP growth will more than halve this year, to 3.1%, matching that of other Middle Eastern oil producers. However, the forecast exceeds the 2.6% growth rate that the IMF predicted in January.

Several OPEC+ members, led by Saudi Arabia, the biggest exporter of petroleum, recently announced unexpected reductions in oil production beginning in May, initially raising global prices. However, concerns about the status of the world economy and an uncertain demand forecast are already weighing on prices.

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

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

Vision 2030 is an ambitious economic reform plan that Saudi Arabia has started, spending billions to diversify into new industries like tourism, start significant infrastructure projects, and grow the financial and private sectors.

According to Azour, the private sector is primarily responsible for the growth in the non-oil economy’s size.