The International Monetary Fund (IMF) foresees OPEC and its partners gradually increasing oil production starting from July, a transition expected to propel Saudi Arabia back into the league of the world’s fastest-growing economies next year.
Amine Mati, the IMF’s mission chief to Saudi Arabia, shared this insight during an interview in Washington, coinciding with the IMF and the World Bank’s spring meetings.
This expectation sheds light on the IMF’s growing optimism regarding Saudi Arabia. The kingdom experienced economic contraction last year as it spearheaded the OPEC+ alliance, alongside Russia, in implementing production cuts. These cuts tightened supplies and drove up crude prices. However, record crude output in 2022 fueled Saudi Arabia to become the fastest-expanding economy among the Group of 20 nations.
According to the latest outlook revealed this week, the IMF has revised its growth estimate for Saudi Arabia in the next year from 5.5% to 6%. This projection, second only to India among major economies, suggests one of the kingdom’s swiftest spurts of growth in the past decade.
The IMF projects Saudi oil production to rise to 10 million barrels per day (MMbpd) in early 2025, up from the current near three-year low of 9 MMbpd. Saudi Arabia asserts its production capacity is approximately 12 MMbpd, and it seldom operated at levels as low as present in the past decade.
Mati mentioned that the IMF slightly adjusted its forecast for Saudi economic growth this year to 2.6% from 2.7% based on actual figures for 2023 and the extension of production curbs until June. Bloomberg Economics anticipates a 1.1% expansion in 2024, assuming the output cuts persist until the year’s end.
Amid escalating tensions in the Middle East and oil prices surpassing $90 a barrel, some analysts speculate a potential policy shift when OPEC and its allies convene on June 1. After prioritizing market stability over sales volumes, Saudi Arabia might opt to increase production, facing years of fiscal deficits and crude prices still below the required level to balance the budget.
Saudi Arabia is investing significant funds to diversify its economy, which remains heavily reliant on oil and related products for over 90% of its exports.
Despite concerns about restrictive U.S. monetary policy, Mati believes it won’t significantly impact Saudi Arabia, given the kingdom’s customary alignment with the Federal Reserve to maintain its currency peg to the dollar.
The IMF also anticipates strong momentum in the non-oil sector growth, driven by Saudi Arabia’s initiatives to develop various industries from manufacturing to logistics. Mati highlighted the kingdom’s ongoing transformative reforms and regulatory improvements, emphasizing the time required for these reforms to yield tangible results.