Ahmad Abdel-Rahman
April 26, 2024

The non-oil sector will lead economic growth in Saudi Arabia

The global economy entered 2024 with significant uncertainty about future performance. The International Monetary Fund's (IMF) outlook in described it as "fragile", in its report issued last October. In its report entitled "Global Economic Prospects", the IMF suggested that growth rates would be 3 per cent in 2023, while in 2024 they would be 0.1 per cent to 2.9 per cent less.

The IMF reduced its expectations for the Saudi economy's growth in 2023, falling 0.8 percent from 1.9 percent in a report issued last June. Despite lowering expectations for growth rates this year, the IMF expects them to rise to 4 percent in 2024, compared to a previous estimate of only 1.2 percent.

Moody's has a positive outlook

Positive expectations for the performance and growth of the Saudi economy in 2024 were not limited to the IMF. The international rating agency, Moody's, thinks the Saudi economy will grow by about 4.6 percent in 2024 and 4 percent in 2025, according to a report issued last November.

Other forecasts by Moody's Analytics raised the Saudi's economy growth rates to 3 or 4 percent until 2040, driven by the expected growth in the country's non-oil sector. This came during an online symposium entitled "Economic Prospects for the Middle East and North Africa in 2024."

Specialists attributed these expectations to the financial policies followed by Riyadh, which aims at diversifying the economy away from oil.

Non-oil sector

During the symposium, Katarina Nuru, an economic analyst at Moody's Analytics, said: "The Saudi economy has seen a transformation in the past decade, with the non-oil sector capturing a growing share of GDP growth." Katarina added: "The country is expected to continue providing credit facilities to small and medium-sized companies to stimulate growth in non-oil economic sectors."

She confirmed that the entertainment, tourism and sports sectors are among the promising activities that support the long-term diversification of the Saudi economy. Despite its positive outlook on the growth of the non-oil sector, Moody's expects the oil sector to remain the primary source of income.

Moody's expects Riyadh to rationalise spending if oil prices can no longer support capital spending. Saudi Finance Minister Mohammed Al-Jadaan confirmed this in an interview with Bloomberg. He expected a general budget deficit on an annual basis until 2026. He said: "The government, which expects a budget deficit until 2026, decided to extend it to build capabilities and avoid huge pressures and supply bottlenecks."

Al-Jadaan also said: "Some projects can be delayed for three years to 2033, and others will be postponed for more than that," adding: "We are working to determine priorities more precisely."

Bridging the gap

He also said that: "Revenues and resources are limited and must be exploited to the best extent to achieve the greatest economic return." These press statements coincided with the announcement of the general budget last December. Al-Jadaan also explained that "his country was able to bridge the gap between requests for financing Vision 2030 projects and the revenues needed to finance them, by extending the implementation period of some projects and giving others priority in execution."

He also announced Saudi's budget for the year 2024 on 6 December 2023, which amounted to USD 1 trillion. According to budget figures, revenues would amount to 1.172 trillion riyals (USD 313 billion), and expenditures would be about 1.251 trillion riyals (USD 334 billion). The deficit was estimated to be USD 21 billion (valued at approximately 79 billion riyals).

Photo: The non-oil sector in Saudi Arabia is meant to grow between 3 and 4 percent until 2040. ( by Adobe).