The Arab world’s largest economy's economic transformation, “commendable reforms” and higher oil prices, have propelled growth, the fund said after a consultation with Riyadh.
The kingdom has managed to bring unemployment to record lows, contained inflation and maintain strong external and fiscal buffers.
“The output gap is estimated to have closed during 2022, with the non-oil growth momentum continuing in 2023,” the IMF executive board said on Wednesday.
“The impressive non-oil revenue mobilisation efforts already initiated … have resulted in doubling of non-oil revenue since 2017 and called for additional fiscal adjustment over the medium term which would allow Saudi Arabia to maintain stronger buffers and meet inter-generational needs while mitigating risks from oil price volatility.”
Saudi Arabia’s economy expanded 8.7 per cent in 2022, the highest annual growth rate among the world's 20 biggest economies, driven by a rise in oil prices and strong performance of its non-oil private sector.
It has carried growth momentum forward, albeit at a slower pace. Gross domestic product grew by 1.1 per cent in the second quarter of this year, boosted by a sharp expansion in the country’s non-oil sector as the kingdom continues to pursue its diversification goals.
The non-oil sector grew 5.5 per cent in the three-month period to the end of June compared with the same period in 2022, according to the General Authority for Statistics.
The kingdom’s economy is forecast to grow by 1.9 per cent this year, instead of 3.1 per cent as previously projected, largely a reflection of oil production cuts and lower oil prices.
Growth in the kingdom is expected to pick up to 2.8 per cent in 2024, the Washington-based fund said in its latest World Economic Outlook update.
Despite a softer pace of growth this year amid global geopolitical uncertainties and economic headwinds, the kingdom has continued the structural and fiscal reform momentum and managed to keep inflation in check, the IMF said on Wednesday.
After an rise in early 2023 to 3.4 per cent headline annual inflation rate fell to 2.7 per cent in June, from 2.8 per cent in May, according to official data.
Prices for housing, water, electricity, gas and other fuels increased by 9.1 per cent overall in June from a year earlier, the kingdom’s General Authority for Statistics data showed.
The banking system in the kingdom also remains on a strong footing. “Aggregate capital adequacy ratio is strong, profitability is high and above pre-pandemic levels, and the NPL [non-performing loans] ratio is low and declining,” the IMF said.
“While growth in mortgages has recently moderated, demand for project-related and consumer loans remains strong, helping offset the impact on profitability from rising funding costs linked to higher interest rates.”