Saudi economy becoming less dependent on oil

According to a senior IMF official, Saudi Arabia’s non-oil economic growth will be supported by government-led reforms and growth in private investment in new sectors. The Saudi Arabian economy grew 8.7% last year, as high oil prices boosted revenue, leading to the kingdom’s first budget surplus in almost 10 years. This year, however, the IMF forecasts Saudi GDP growth to more than halve, to 3.1%, in line with the forecast for Middle East oil exporters. Nevertheless, the forecast is higher than the 2.6% growth rate that the IMF projected in January.

The director for the Middle East and Central Asia at the IMF, Jihad Azour, stated that the implementation of new OPEC+ quotas would cause the oil sector to slow down, 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.

Saudi Arabia has reduced its dependence on oil in recent years, with the kingdom launching an ambitious economic transformation plan known as Vision 2030. The plan seeks to diversify the economy 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, according to Azour.

Azour believes that the Saudi economy’s strategy over the past five to six years has been successful in making the economy and public finances less dependent on the oil cycle. Although OPEC+ recently announced surprise cuts to oil production from May, initially driving up global prices, an uncertain demand outlook and global worries are currently weighing on prices.