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IMF: Financial, Regulatory Reform Agenda Contributed to Accelerating Growth of Saudi Economy

A night view of Riyadh, Saudi Arabia. (Getty Images)
A night view of Riyadh, Saudi Arabia. (Getty Images)
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IMF: Financial, Regulatory Reform Agenda Contributed to Accelerating Growth of Saudi Economy

A night view of Riyadh, Saudi Arabia. (Getty Images)
A night view of Riyadh, Saudi Arabia. (Getty Images)

The International Monetary Fund (IMF) issued on Wednesday a favorable report on Saudi Arabia following the conclusion of the Article IV consultations with the Kingdom. The IMF report confirmed that Saudi Arabia's financial and regulatory reform agenda contributed to accelerating the Saudi economy's growth, containing inflation, and reducing the unemployment rate to its lowest levels ever.

The IMF praised the ongoing economic transformation and efforts to diversify the economy under the Saudi Vision 2030.

The IMF Article IV Consultation report commended the macroeconomic policies and transformational changes implemented by the Kingdom, which contributed to boosting the growth of non-oil activities.

The report noted that Saudi reforms led to rising employment, which now exceeds pre-Covid figures, and that the rate of women's participation in the labor market rose to more than 35%, exceeding the Saudi Vision 2030 target of 30%.

The IMF welcomed Saudi Arabia's measures of conducting long-term financing planning that supports the implementation of the initiatives, programs, and projects of Vision 2030 while mitigating the risks of overheating. It stressed that the Kingdom's fiscal space is strong and that sovereign debt risks are low, adding that the abundance of financial reserves in Saudi Arabia has limited the impact of global and regional challenges.

The IMF report noted that the ongoing reforms in the Kingdom - which include ensuring the effective implementation of regulations, streamlining fees, boosting human capital, increasing the participation of Saudi women in the labor market, facilitating access to land and financing, and improving governance - have contributed to enhancing private sector growth and attracting more foreign direct investment, in addition to the significant progress in the field of digital transformation and artificial intelligence that support these efforts.

The IMF Executive Directors commended Saudi Arabia's leadership role in multilateral fora, including its chairmanship of the International Monetary and Financial Committee (IMFC) in the IMF, which contributed to efforts to address global challenges.

Moreover, the report noted increased activity in the services sector - including transportation, trade, tourism, and finance - as consumption growth reached 5.7%.

The IMF said foreign investment license applications reached record levels in 2023, as they approximately doubled from 2022, including the 330 companies applying for licenses to establish their regional headquarters in the Kingdom.

The report reviewed the banking sector developments in the Kingdom, stressing its strong levels of solvency and liquidity and its flexibility to shocks. The banking sector is on a strong footing and also noted the efficiency of banking mediation according to indicators of profitability, infrastructure, and competitiveness.

The report highlighted the rise in the Saudi Stock Exchange (Tadawul) index of 14.2% in 2023, surpassing the Morgan Stanley Emerging Markets Index of 7%. It noted the progress in the technical environment enabling investment and the licensing of three digital banks. The IMF stressed their contribution to bolstering financial inclusion and competitiveness as these banks are characterized by flexibility and innovation.

Furthermore, it noted the Kingdom's containment of risks resulting from the rapid growth of real estate lending through diverse government support, the strength of banks, full recourse mortgages, and other supportive measures. It highlighted improvements in automating the national assessment matrix for money laundering and terrorist financing risks and boosting the accuracy of data analysis related to risks received from reporting entities, including fintech companies.

The report said the increase in non-oil revenues reflects the effectiveness of existing reforms, which directly contributed to enhancing compliance. It also praised the alignment of customs procedures with international best practices.

The IMF expected the non-oil sector, which includes government activities, to grow by 3.5% in 2024, supported by strong domestic demand. The inflation rate in the Kingdom is probable to remain stable at around 2% over the medium term, supported by the Saudi riyals' peg to the US dollar and local policies consistent with Vision 2030.

The IMF confirmed that the Kingdom has one of the lowest carbon intensity levels among all major producers due to ongoing environmental reforms and its efforts to achieve net zero by 2060. The report noted the Kingdom's success in securing a 30-year purchase agreement for the green hydrogen project in NEOM to achieve its efforts to utilize renewable energy sources.

In order to sequester approximately 44 million tons annually by 2035, the IMF said the Saudi government intends to build one of the world's largest carbon capture and storage plants, which will be operational by 2027, with a capacity of 9 million tons of carbon dioxide annually. It underscored the Kingdom's current efforts to sequester 1.3 million tons of carbon annually through the SABIC Plant and Uthmaniyah Gas Plant Department.

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Urgent Financial Tasks Await Lebanon’s Emerging Government

Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
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Urgent Financial Tasks Await Lebanon’s Emerging Government

Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)
Lebanese President Joseph Aoun stands between Speaker of Parliament Nabih Berri and caretaker Prime Minister Najib Mikati (dpa)

A broad internal consensus, encompassing both political and economic dimensions, is taking shape to adopt the principles outlined in the presidential inauguration address as the foundation of the new government’s program and ministerial statement. This approach aims to sustain Lebanon’s immediate and strong positive momentum, which is reinforced by widespread support on both Arab and international levels.

Economic bodies and professional unions representing business sectors have openly expressed their relief and full support for the strategic directions set by President Joseph Aoun following his election. However, they have made it clear that maintaining this positive momentum depends on the formation of a reform-oriented rescue government, composed of competent, experienced, and honest ministers. This government must also collaborate constructively with the president.

According to a senior financial official, the rescue mission will be challenging due to years of governmental inaction and constitutional voids, which led to a deterioration in public sector operations and the accumulation of economic, financial, and monetary crises over the past five years. These challenges were further compounded by a devastating war, which inflicted severe human and financial losses estimated at approximately $10 billion, thereby worsening the country’s financial gap, now estimated at $72 billion.

Economic and banking circles are looking to the new government to swiftly capitalize on extensive international support by restoring trust and reestablishing financial channels between Lebanon and its regional and international partners. Key to this effort are explicit and transparent commitments to combating illegal economic activities, corruption, smuggling, money laundering, and drug trafficking. In parallel, the government must prioritize strengthening judicial independence and implementing strict controls over land, sea, and air borders.

The national consensus evident in the presidential election, according to Mohammad Choucair, head of Lebanon’s economic associations, paves the way for constructive collaboration among political factions. This collaboration is crucial for addressing challenges, rebuilding the state, and benefiting from renewed international and Arab—particularly Gulf and Saudi—interest in Lebanon. Choucair emphasized the importance of normalizing relations with Gulf nations, supporting Lebanon’s recovery, and providing resources for reconstruction efforts.

One of the urgent tasks for the new government, according to the financial official, is revisiting the draft 2024 state budget, which was previously submitted to parliament. Adjustments are necessary to address fundamental discrepancies in expenditure and revenue projections, taking into account significant changes brought about by the Israeli war.

Ibrahim Kanaan, chairman of the Parliamentary Finance Committee, described the budget as “unrealistic, if not entirely fictitious,” particularly in its revenue estimates. He pointed out that revenue increases were based on income and capital taxes, internal duties, and trade-related fees, all of which have been severely impacted by the war.

Reassuring depositors, both domestic and expatriate, who have suffered massive losses over recent years, is another pressing issue. These losses were exacerbated by the inability of successive governments to implement a comprehensive rescue plan addressing the $72 billion financial gap fairly. The situation was worsened by mismanagement in the electricity sector and the squandering of over $20 billion in central bank reserves following the onset of the financial crisis.

In response to Aoun’s commitment to a fair resolution for depositors, the Association of Banks in Lebanon welcomed his emphasis on safeguarding deposits. It also expressed its readiness to collaborate with the central bank and the government to protect depositors’ rights, citing a recent State Council ruling that prohibits any financial recovery plans from including measures that would erode depositors’ funds.

In its final session, the caretaker government addressed long-standing creditor issues by unanimously agreeing to suspend Lebanon’s right to invoke statutes of limitations on claims by foreign bondholders under New York law. This suspension, effective until March 9, 2028, aims to facilitate future negotiations.

With this decision, the caretaker government tacitly acknowledged Lebanon’s pending debt obligations, including over $10 billion in suspended interest payments on Eurobonds and approximately $30 billion in principal debt. The resolution now awaits direct negotiations under the new administration, which faces the challenge of resolving a nearly five-year-old crisis triggered by the previous government’s uncoordinated decision to halt payments on all Eurobond obligations through 2037.

Caretaker Finance Minister Youssef Khalil emphasized that despite the difficult circumstances, “Lebanon remains committed to reaching a fair and consensual resolution regarding the restructuring of Eurobond debt.”