The International Monetary Fund (IMF) has affirmed that the Saudi economy is undergoing a transformation, as reforms are being implemented to reduce dependence on oil, diversify sources of income, and enhance competitiveness.
In an article published on its website on Thursday, titled “Saudi Arabia's Economy Grows as it Diversifies,” authored by IMF economists Amine Mati and Sidra Rehman, the Fund stated that this year marks a significant turning point in the ambitious journey of the Kingdom of Saudi Arabia towards its “Vision 2030.”
As shown in the latest IMF annual review of the Kingdom’s economy, progress has been most notably reflected in non-oil growth, which has accelerated since 2021, averaging 4.8% in 2022.
Non-oil revenue doubled in just four years due to VAT rate increases and high regulatory compliance.
Non-oil exports reached a record $84.4 billion in 2022.
Shares of manufacturing and services increased by 15% over the past 20 years, and the tourism sector is contributing 4.5% to GDP.
According to the IMF, two reforms are playing a key role in Saudi Arabia’s economic transformation: Labor market reform and Digitalization.
The share of Saudis in high-skilled jobs increased from 32 % in 2016 to 42 % in 2022. Female workforce participation has doubled over the past four years, reaching 37% and clearly surpassing the Vision 2030 target of 30%.
Meanwhile, the digital sector’s contribution to overall growth increased from 0.2% in 2016 to 15% in 2022, which has bolstered the financial sector’s resilience, government efficiency and financial inclusion.
Despite lower overall growth reflecting additional oil production cuts, non-oil growth will remain close to 5% in 2023, spurred by strong domestic demand.
As a result of a new set of laws to promote entrepreneurship, protect investors’ rights, and reduce the costs of doing business, new investment deals and licenses grew by 95% and 267% in 2022, respectively.
In addition, the Saudi Investment Fund (PIF) has been deploying capital, including to help stimulate private sector investment.
Moreover, the Saudi economy’s non-oil growth has been spurred by strong domestic demand, particularly private non-oil investment. Sustaining this performance requires pursuing sound macroeconomic policies and maintaining the reform momentum, irrespective of developments in oil markets.
Challenges ahead include making sure large projects generate returns and boost productivity, which are vital for sustained economic growth and will help further diversify the economy.
There is a need to continue the ongoing efforts to foster a more conducive environment for innovation and invest in workforce skills that complement the diversification agenda.