Saudi Arabia is recovering strongly following a deep pandemic-induced recession, said the International Monetary Fund (IMF) Wednesday. The aforementioned data is part of IMF’s Executive Board’s conclusion of 2022 Article IV consultation with Saudi Arabia; on July 27, 2022. Liquidity and fiscal support, reform momentum under Vision 2030, and high oil prices and production helped the economy recover with a robust growth, contained inflation and a resilient financial sector, the Board noted.
The receding effects of the pandemic, rising oil production/prices and a strengthening economy have improved the fiscal and external positions, it added in a report. Overall growth was robust at 3.2 percent in 2021, in particular driven by a rebounding non-oil sector, supported by higher employment for Saudi nationals, particularly women, and is expected to increase significantly to 7.6 percent in 2022. Inflation remained contained at 3.1 percent in 2021 as the base effect of the mid-2020 VAT hike dissipated coupled with a low pass-through of international food and commodity prices. Banks remain liquid, well capitalized, and their profitability, which declined during the COVID
-19 pandemic, rebounded strongly in 2021 as net interest margins recovered. Credit to the private sector expanded by 15.4 percent in 2021, mainly driven by mortgages and SME lending. Saudi financial markets surged earlier this year, albeit most of this surge was reversed over the past two months in line with recent global developments.
The overall fiscal balance increased by almost 9 percentage points of GDP to a 2.3 percent of GDP deficit in 2021, mainly reflecting oil revenues and non-oil tax revenues supported by a rebounding economy and the full-year effect of the tripling of the VAT rate to 15 percent in mid-2020. In an assessment, IMF Directors underscored the need to continue implementing the Vision 2030 reform agenda, which will serve to diversify the economy and promote strong, inclusive, and greener growth. The Directors welcomed the authorities’ fiscal discipline and their adherence to the 2022 budget ceilings despite higher oil prices, as well as welcoming the authorities’ commitment to reach market energy prices by 2030. The also Directors commended the authorities for ongoing reforms to strengthen social safety nets through targeted schemes, which should help sustain energy price reforms. They also welcomed the continued improvements in public financial management and encouraged further efforts to increase fiscal transparency, as well as the continued resilience of the financial sector and central bank’s strong supervision.
The Directors commended the authorities for the significant progress in implementing their ambitious structural reform agenda. They welcomed the impressive pace of labor market reforms, particularly the doubling of female labor force participation, and encouraged continued actions in this area. It is expected that the next Article IV consultation with Saudi Arabia will be held on the standard 12-month cycle. Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.