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The Washington-based IMF has projected a non-oil real GDP growth rate of 3.4% for Saudi Arabia in 2025, a decline of 0.8 percentage points when compared to last year.
The forecast, which was included in its Article 4 statement on 26 June, reflects the kingdom’s ongoing efforts to diversify its economy away from oil dependency, bolstered by robust domestic demand and government-led projects. The outlook is tempered by challenges, including rising debt levels and the need for continued structural reforms.
Non-oil activities expanded significantly in 2024, with non-oil real GDP growing by 4.2%, driven primarily by private consumption and non-oil private investment, particularly in sectors such as retail, hospitality, and construction. Despite a decline in oil GDP due to Opec+ production cuts, which kept oil output at its lowest level since 2011, the overall real growth rate for the economy was recorded at 1.8%.
The IMF’s assessment indicates that the composite Purchasing Managers’ Index (PMI) suggests sustained economic activity, with non-oil sectors expanding by 4.9% year-on-year in the first quarter of 2025.
Saudi Arabia’s fiscal position has faced challenges. These include a shift to a current account deficit, and for now, the IMF says the overall debt situation remains manageable. Central government debt rose to 26.2% of GDP, making Saudi Arabia the largest emerging market dollar debt issuer in 2024. Despite the rising debt levels, the kingdom continues to be one of the least indebted nations globally, with net debt at approximately 17% of GDP.
The fiscal deficit is projected to widen to 4.3% of GDP in 2025, primarily due to increased government spending linked to Vision 2030 projects and lower oil revenues. Despite this, the non-oil primary balance showed improvement, indicating a commitment to fiscal consolidation. The government plans to finance the deficit through borrowing, including debt issuances and loans from export credit agencies.
Structured reforms
The IMF emphasised the importance of ongoing structural reforms to sustain non-oil growth and mitigate risks associated with external shocks. It has made significant strides in reforming business regulations, governance, and labour markets since 2016. Recent legislative changes, including updates to the Investment Law and Labour Law, aim to enhance the business environment and attract foreign investment.
The government’s commitment to diversifying its economy is evident in its ambitious targets, including a goal to produce 52% of its energy from renewable sources by 2030. Projects such as the development of green hydrogen facilities and the expansion of the liquefied natural gas (LNG) infrastructure are pivotal in this transition.
For risks, the IMF said the potential for weaker oil demand, exacerbated by global economic uncertainties, could impact fiscal revenues and increase the current account deficit, projected to peak at 3.9% of GDP by 2027. The government must navigate these challenges while ensuring that fiscal policies do not become procyclical, which could hinder growth.
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