IMF commends Saudi economy's resilience

The Executive Directors of the International Monetary Fund (IMF) praised the Saudi economy's resilience in the face of the conflict in the Middle East and the resulting disruptions to shipping, trade and oil exports.

According to the IMF Executive Board's Article IV Consultation with Saudi Arabia, concluded on July 22, the directors attributed the economy's resilience to policy reforms implemented under Saudi Vision 2030.

They said these efforts have strengthened the country's macroeconomic fundamentals, supported by ample fiscal and external buffers, diversified energy and logistics infrastructure—including the East-West Pipeline—and effective crisis management.

Directors commended the authorities' efforts to support trade rerouting, which helped bolster the resilience of regional economies and global energy markets. They also welcomed the steady progress in implementing reforms, which has strengthened institutions, enhanced economic performance, and helped preserve macroeconomic and financial stability.

They noted that the outlook remains highly uncertain, with risks tilted to the downside. While a gradual recovery is expected once maritime traffic through the Strait of Hormuz returns to normal, an escalation or prolonged conflict could heighten uncertainty and weigh on growth prospects. They therefore emphasized the importance of maintaining policy flexibility, safeguarding fiscal and external buffers, and updating contingency plans, including measures to preserve confidence.

Directors agreed that a modest reduction in the non-oil primary deficit in 2026 is appropriate, with any fiscal response to the shock accommodated through spending reprioritization.

They commended the authorities' prudent policy stance and considered the non-fiscal measures taken so far to be appropriate, while stressing that any fiscal support should be temporary, targeted and transparent. Directors generally agreed that Saudi Arabia has sufficient fiscal space to ease its fiscal stance and cushion the economy should the shock intensify.

Directors welcomed the authorities' commitment to medium-term fiscal sustainability, noting that as conditions normalize, ambitious fiscal consolidation will be needed to ensure adequate savings for future generations. They stressed the importance of mobilizing non-oil revenue, rationalizing expenditure, improving public investment management, reforming energy subsidies, and continuing to strengthen fiscal institutions and frameworks.

The directors agreed that the riyal's peg to the US dollar remains appropriate and acknowledged the Saudi Central Bank's prudent liquidity management.

They also welcomed Saudi Arabia's financial stability, citing the banking sector's strong capital and liquidity buffers and the progress made in implementing the 2024 Financial Sector Assessment Program (FSAP) recommendations, including the activation of the countercyclical capital buffer and advances in crisis preparedness.

Directors encouraged the authorities to continue strengthening the monitoring of credit conditions and remain vigilant regarding foreign currency funding risks, sovereign-bank linkages, and exposures to large-scale projects.

They commended the substantial progress achieved under Saudi Vision 2030 over the past decade, noting that it has strengthened the non-oil economy, expanded the role of the private sector, advanced economic diversification, and delivered measurable improvements in labor market outcomes, including higher female labor force participation.

Directors said Vision 2030 offers valuable lessons for other countries pursuing ambitious reform agendas, as well as for the IMF's engagement with member countries, while emphasizing the importance of sustaining the reform momentum.

They also welcomed the renewed focus on strengthening economic resilience, including through investment in logistics infrastructure, and encouraged continued efforts to deepen economic diversification, improve the business environment, develop capital markets, enhance human capital and labor market outcomes, strengthen governance and transparency, and advance digitalization.

Directors also welcomed the Public Investment Fund's recalibrated strategy toward more selective capital allocation and a greater role for the private sector in supporting productivity. They further highlighted the benefits of deeper GCC integration in strengthening the region's resilience.

Finally, directors commended Saudi Arabia's leadership in multilateral forums, including the G20 and through the Chair of the International Monetary and Financial Committee (IMFC), and expressed their expectation that the Kingdom will continue contributing to addressing global challenges.

The IMF projects Saudi Arabia's economy to grow by 1.7% in 2026, with non-oil GDP expanding by 2.6%. Domestic demand is expected to continue supporting economic activity, underpinned by stable employment, robust government spending, and the steady implementation of capital projects.

The economy is expected to recover gradually as maritime traffic through the Strait of Hormuz returns to normal.