The International Monetary Fund (IMF) confirmed that government-led reforms and private investment growth in new sectors would help support non-oil economic growth in Saudi Arabia to be less dependent on oil.
The Saudi economy grew 8.7 percent last year, while the real GDP during the fourth quarter of 2022 increased 5.5 percent compared to Q4/2021, according to the General Authority for Statistics (GASTAT).
The IMF projected that Saudi GDP growth would more than halve, to 3.1 percent, this year, in line with the forecast for Middle East oil exporters.
The forecast, however, is higher than the 2.6 percent growth rate that the IMF projected in January.
The director for the Middle East and Central Asia at the IMF, Jihad Azour, told Reuters that the oil sector is expected to slow down with the implementation of the new OPEC+ quotas.
Azour added that the impact on the Kingdom’s budget depended on prices.
He said that the drop in production will affect growth because output will decline, and that revenues could grow, which could have a positive impact on both external accounts, the reserves, and the budget deficit.
Azour added that the government’s strategy over the past five years has helped the Saudi and public finances to be less dependent on the oil cycle.
Azour went on to say that the non-oil economy is growing in Saudi Arabia, mainly driven by the private sector.
In addition, the IMF expected non-oil GDP growth in Saudi Arabia by 4.9 percent this year and 4.2 percent next year.
The Kingdom’s economy would grow 3.1 percent this year, an upward revision of the previous estimate of 2.6 percent in January.
Saudi Arabia’s oil exports are expected to reach 7.44 million barrels per day (bpd) in 2023 and 7.48 million bpd in 2024.
The IMF pointed out that the oil price that Saudi Arabia needs for budget breakeven is $80.90 per barrel in 2023, expecting the average oil price at $73.13 per barrel this year.
Meanwhile, the Riyad Bank Purchasing Managers’ Index (PMI) revealed that non-oil private sector companies witnessed a continuous improvement in overall performance during April, as new orders increased at the fastest rate since September 2014.
According to the index, the slight decline in export sales was offset by an increase in domestic demand, and job creation continued in April, as evidenced by the rise in total employment numbers for the 13th consecutive month.
The Kingdom’s PMI went up to 59.6 in April from 58.7 in March, fractionally lower than the eight-year peak in February, when the metric hit 59.8.
The sharp and rapid increase in new business volume was the main driver of the rise in the index during April, and the growth rate of new orders was the fastest in just over eight and a half years.
Companies participating in the study commented on positive factors supporting customer demand, including the increase in tourists and consumer spending.
According to the report, job creation continued in April, as signaled by a rise in total employment numbers for the 13th month.
The report, however, noted that new orders from abroad declined for the first time since February 2022 due to intense competition and less favorable economic conditions in overseas markets.
Chief economist at Riyad Bank Naif al-Ghaith said the April PMI data highlighted another steep expansion of business activity across the Kingdom’s non-oil private sector economy.
“We have witnessed rising tourism numbers, higher consumer spending, and new business opportunities related to major infrastructure projects,” Gaith said, adding that long-term business expansion plans have made the rate of job creation slightly stronger than seen on average in the first quarter of 2023.