Saudi Arabia’s quick response to counter the Covid-19 pandemic has curtailed its impact on the kingdom’s economy, which is expected to expand 2.1 per cent this year, the International Monetary Fund said.
The pace of recovery will accelerate next year, as the largest Arab economy will expand 4.8 per cent in 2022, after contracting 4.1 per cent in 2020, the IMF said in a statement.
“The authorities responded quickly and decisively to the Covid-19 crisis and the economic recovery that is underway is expected to continue,” the Washington-based lender said at the conclusion of its Article IV consultations with Saudi Arabia.
The kingdom’s non-oil gross domestic product is projected to grow 3.9 per cent in 2021 and 3.6 per cent next year, after a contraction of 2.3 per cent in 2020.
The oil economy of Opec’s biggest exporter is projected to contract 0.5 per cent this year as production curbs by the group and its allies to support prices remain in place. However, it is expected to expand 6.8 per cent in 2022 as they are removed. Oil GDP shrank 6.7 per cent last year as demand and prices declined once movement restrictions to stem the spread of the virus were introduced.
"The [IMF] statement reaffirms the success of the kingdom's government in achieving positive results and tangible successes during the most challenging year for the whole world," Mohammed Al-Jadaan, Saudi Arabia's Minister of Finance, said in a statement.
The country has risen to challenges that include the Covid-19 pandemic, fluctuations in oil prices, sharp economic swings, a decline in global demand and receding growth, he added.
Saudi Arabia launched fiscal and monetary stimulus programmes last year to support its economy. The measures were aimed at protecting the kingdom’s banking system and commercial entities, especially micro, small and medium-sized enterprises,.
In June last year, the Saudi Central Bank injected 50 billion riyals ($13.3bn) into financial institutions to boost liquidity and banks' lending capacity. It provided another 50bn riyals to shore up its private sector and launched concessionary finance for SMEs of up to 13.2bn riyals, as well as loan guarantees worth 6bn riyals.
Under its Private Sector Financing Support Programme, the central bank also extended about 30bn riyals to lenders and financing companies, allowing the SME sector, the biggest employer in the kingdom, to postpone repayment of loans.
Some of the stimulus measures remain in place while others are being rolled back as the kingdom’s economy recovers.
“To secure [complete] recovery and spur stronger growth, policymakers need to carefully manage the exit from the remaining Covid-related support [measures],” the IMF said.
“The private sector support programmes that Sama and the banks have implemented during the crisis have provided important breathing space to SMEs … [and] the need to continue with the deferred payments programme should be assessed regularly based on the economic and financial situation facing SMEs.”
Even before the twin shocks of the pandemic and oil price slump, Saudi Arabia has been transforming its economy away from oil to cut its reliance on hydrocarbon revenue. The IMF said the kingdom should “continue the longer-term reform agenda under Vision 2030”.
The fund said Saudi Arabia’s 2021 budget aims to substantially reduce its fiscal deficit, which widened in 2020 to 11.3 per cent of GDP from 4.5 per cent in 2019.
It projects the deficit will narrow to 4.2 per cent of GDP this year, slightly lower than the kingdom’s 2021 budget forecast, and move to a broad balance by 2026, “given the outlook for the global oil market and the fiscal policy plans of the government”.
The IMF urged further fiscal consolidation but said this should be “carefully calibrated” in the short term to ensure the recovery continues to be well supported.