RIYADH: The International Monetary Fund has welcomed recent recalibrations and adjustments by Saudi Arabia on some of its megaprojects under Vision 2030.
“We are almost at a midpoint in the Vision 2030,” said Jihad Azour, the IMF director of the Middle East and Central Asia department, and “those recalibrations are part of the classical revision of any medium-term strategy.”
The Kingdom is conducting a review of its major projects, reprioritizing spending, diverting funds and adjusting budgets, according to a recent report by Bloomberg News, while in May, Reuters also reported that the Public Investment Fund “is weighing a reorganization that includes reprioritising projects and reviewing some expenses.”
Azour said these are welcomed by the IMF as Saudi authorities are now looking at and recalibrating their investment programs.
“What is driving the non-oil growth in the Saudi economy is a mix of increasing demand, the impact of structural reforms that have, for example, improved economic activity but also improved the employment indicators, we saw a doubling of the women participation in the economy, (and) a drop in the unemployment,” Azour said during an interview with Joumanna Bercetche on Bloomberg’s Horizons Middle East and Africa program.
Structural reforms, investment, and increasing demand by opening a number of new sectors are driving the growth in the economy, he added.
“The management of the economy, the ability to keep prices under control and the translation of economic growth into job creation are steps in the right direction in accelerating the diversification of the economy and growing the size of the non-oil sector,” he also said.
Earlier this week, the IMF downgraded the Kingdom’s economic growth by nearly 1 percentage point to 1.7 percent this year, down 0.9 percentage points from the agency’s previous forecast in April of 2.6 percent.
In its World Economic Outlook update, the IMF also revised the country’s output increase to 4.7 percent next year, down 1.3 percentage points from its April forecast of 6 percent.
“When we look at the non-oil economic activity, it is still growing at healthy rates and on average, we expect for the next medium term to exceed 4 percent,” Azour said, adding: “Inflation is still low and it has been revised slightly downward (to) 1.7 percent this year, which is a very good control over prices and our expectation is that inflation will remain around 1.9 to 2 percent in the medium term.”
He said the main reason for the IMF’s revision is due to the OPEC+ agreement to limit oil output being extended to September 2025 and the gradual reduction in the Kingdom’s voluntary production cuts.
In June, the group agreed to extend most of its deep oil output cuts for 2024 and to start phasing them out next year. Member countries have begun cutting output by 5.86 million barrels per day, or around 5.7 percent of global demand.
“We had to revise technically the growth for the oil sector, and for the non-oil sector, I would say, the level of growth is still higher than the global growth. 3.7 percent is our expectation for the non-oil sector this year, and in the medium term, we expect the non-oil sector to grow at above 4 percent.”
The IMF forecast that global growth will reach 3.2 percent this year and 3.3 percent next year, while the Middle East and North Africa region is projected to grow 2.2 percent this year, down half a percentage point from three months ago.
Azour acknowledged that the instability in the region and geopolitical tensions have a great impact on economic activity, including the war in Gaza and attacks on shipping that are disrupting trade routes in the Red Sea and Suez Canal.
“We are still seeing that as a threat, especially because of the insecurity (that) has affected the trade that usually goes through the Red Sea and Suez Canal and affected slightly economic activity in a certain number of countries who benefit from this flow of trade,” he said.
The IMF is seeing that the volume of commerce has declined drastically through the Red Sea, especially for container shipping, where two-thirds of the trade has dropped compared to the same period last year, Azour said, adding that the agency has also seen a slight increase in the cost of transport.
“We saw a rapid response and a high level of flexibility in adjusting to that and therefore it did not lead to a disruption in oil and gas, and this is something that had to stabilize the market and reduce the level of volatility that we saw in the first few weeks of the war in Gaza,” he said.
The oil and gas and the financial markets recovered after a short period of volatility, Azour also said, but “in both cases now it’s much more dependent on global developments on the supply and demand for oil, and for the markets, it’s now much more linked to the developments in the international financial markets.”
The comments came as the Minister of Economy and Planning, Faisal Alibrahim, met with IMF Managing Director Kristalina Georgieva in Riyadh to discuss the “prospects for global and regional growth in light of the latest economic developments,” the ministry said in a statement.
They also reviewed the most prominent developments and trends in the local economy and discussed enhancing cooperation between the Kingdom and the fund.
He also held separate talks with Azour and IMF Chief Economist Pierre-Olivier Gourinchas.
