Saudi Arabia is an economic bright spot at difficult time for the world's economies, says the managing director of the International Monetary Fund.
The kingdom needs to maintain its high growth rate as regional and global economies require it, Kristalina Georgieva said on Wednesday at the World Economic Forum in Davos.
“We look at the high growth rates of Saudi Arabia with gratitude … also because we need that for the regional and the world economy,” she said.
Ms Georgieva is “incredibly impressed by the progress” the country has made in implementing the Vision 2030 programme.
The kingdom’s economic, social and fiscal transformation agenda has delivered and the Arab world’s largest economy has implemented the right policies in a difficult situation, she added.
“I don't know in many countries, during these difficult times, there would be courage to increase the [value added tax] from 6 per cent to 15 per cent,” she said.
“The Saudis did it. They are using the increase in revenue very effectively to create the investment environment for future growth for diversifying the economy.”
Saudi Arabia's economy is estimated to have grown at the quickest pace in a decade in 2022. Sweeping pro-business reforms, together with a sharp rise in oil prices and increased crude production, have powered the kingdom’s post-pandemic recovery.
The IMF estimates the kingdom's economy grew 7.6 per cent in 2022 after 3.2 per cent growth in 2021. Jadwa Investment projected economic expansion of 8.7 per cent last year, while the Organisation for Economic Co-operation and Development estimated gross domestic product growth of as much as 9.9 per cent.
Saudi Finance Minister Mohammed Al Jadaan in December said the kingdom's GDP is forecast to have grown 8.5 per cent last year, with average inflation at about 2.6 per cent.
Saudi Arabia's preliminary estimates for 2023 indicate GDP growth of 3.1 per cent, with inflation at 2.1 per cent.
The sharp growth came despite global economic deceleration amid inflation that hit a 40-year high in the US and Europe.
In October, the IMF cut its global economic growth forecast to 2.7 per cent for 2023, 0.2 percentage points lower than its July forecast.
It had also warned of a 25 per cent probability that output could fall below 2 per cent in 2023, the weakest growth since 2001 except for the 2008 global financial crisis and the acute phase of the Covid-19 pandemic.
Ms Georgieva on Wednesday said that 2023 will be a difficult year, with “unthinkable events” including the pandemic as well as the war in Ukraine and its impact on energy and food prices.
“With inflation being high, central banks had no choice but to tighten interest rates and that throws cold water on the prospects for growth,” she said.
Economic deceleration is expected to bottom out towards the end of this year but there remain “significant uncertainties” including how China's reopening will impact growth.
“Even if inflation seems to be finally moving in the right direction, there is a long way to go,” she said.
Global inflation is estimated to have risen to 8.8 per cent in 2022 from 4.7 per cent in 2021. It is expected to decline to 6.5 per cent this year and to 4.1 per cent by 2024, IMF data says.
Mr Al Jadaan said the kingdom managed to keep inflation low because “we saw it coming earlier than what a lot of people anticipated”.
“We saw the signs and we said we need to do things that will protect the Saudi economy from inflation and we have done that successfully,” he told delegates in Davos. “We froze energy prices in the local economy.”
He said the kingdom’s Vision 2030 agenda is a multi-facet success. It has changed and prepared the country “even in the way we handle international and global shocks”.
“That is something really to think about and learn from in terms of what needs to be done globally, and how to be proactive and responsive,” he added.
The transformation success of Saudi Arabia is “quite breathtaking” in the post-Covid world, Jane Fraser, chief executive of Citigroup said during the discussion.
“When we see what's happening in terms of energy transition, where Saudi is really leading the way, as a banker one gets frightfully excited,” she said.
“It is a long term vision at a point … where there is a real desire for long term investment and for the investors that we work with, this is an exciting opportunity.”