Saudi Arabia sees medium-term non-oil growth at over 5%, below previous estimate

[February 19, 2024]  By Alexander Cornwell and Pesha Magid
 
RIYADH (Reuters) -Saudi Arabia's non-oil growth is expected to come in above 5% in the medium term, Finance Minister Mohammed Al Jadaan said on Monday, slightly lower than the 6% figure previously projected, but likely to outperform the wider region this year. 

A general view of the car market as people gather to buy vehicles before the expected increase of VAT to 15% in Riyadh, Saudi Arabia June 27, 2020. REUTERS/Mohammed bin Mansour/File photo

"If you look at the non-oil GDP, it is growing at very healthy numbers: 4% and north of 4%. We are expecting 5%-plus in the medium term," Jadaan told delegates at the Saudi Capital Markets Forum in Riyadh. "That is very strong growth."

The world's top oil exporter is accelerating plans to diversify its economy away from oil under a plan known as Vision 2030. It aims to develop sectors such as tourism and industry, expand the private sector and create jobs.

Non-oil activities vastly outperformed oil sector expansion last year, lifting overall growth which had slowed sharply on the back of cuts to oil production and lower prices.

The International Monetary Fund in January forecast non-oil growth in the oil and gas exporting Gulf Cooperation Council (GCC) states - of which Saudi Arabia is a member - at below 4% this year, projecting 3.9% in 2024 and 4% in 2025.

The IMF also slashed its 2024 GDP growth forecast for the kingdom to 2.7% but said that non-oil growth was still expected to remain "robust".

Jadaan had said in October that non-oil GDP was expected to grow by around 6% in 2023 and beyond, possibly to 2030.

Non-oil GDP grew 4.6% in 2023, while overall GDP contracted 0.9%.

The government expects higher spending in the coming years, which analysts have said will drive domestic growth and support non-oil GDP but will also tilt the kingdom into a fiscal deficit of about 2% this year.

But Jadaan said Saudi Arabia's economic and social reforms - including significantly narrowing fiscal deficits - had allowed it to be better equipped to deal with external shocks such as the COVID-19 pandemic and geopolitical risks.

"We transform socially. We transform economically. We transform in fiscal policy, where we brought all the budget deficits down from 15% to 2% or even less than that. That is how a country becomes more resilient and deals with these shocks," he said in Riyadh.

(Reporting by Alexander Cornwell and Pesha Magid; Writing by Rachna UppalEditing by Jason Neely and Gareth Jones)

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