Saudi Arabia's economic transition: major reduction in oil dependence

The International Monetary Fund (IMF) has pointed out that Saudi Arabia's economy faces a sharp slowdown in growth this year. However, it has also stressed that government-led reforms and increased private investment in new sectors will help to support non-oil economic growth in the country. On the other hand, the IMF also stressed that the development of non-oil sectors, such as technology and tourism, is key to economic diversification and reducing dependence on oil. 

Last year, Saudi Arabia's economy grew by 8.7 per cent thanks to high oil prices, generating higher revenues and enabling the country to post its first budget surplus in almost 10 years. Despite this strong growth, the International Monetary Fund (IMF) forecasts that the country's GDP growth will more than halve to 3.1% this year, which is in line with projections for other Middle Eastern oil exporters. Although this growth rate is lower than last year's, it is higher than the IMF's January projection of 2.6% growth. The IMF has noted that while high oil prices have boosted economic growth, it is important that the country continues to diversify its economy to reduce its dependence on oil and increase its long-term economic stability. In this regard, Saudi Arabia has been implementing economic reforms and investing in non-oil sectors, such as technology and tourism, as part of its Vision 2030 programme. 

Recently, several OPEC+ member states, led by Saudi Arabia, decided to unexpectedly cut oil production starting in May, which initially pushed global prices higher. However, global concerns and uncertain demand prospects have made oil prices volatile. IMF director for the Middle East and Central Asia, Jihad Azour, explained that the oil sector is expected to slow down this year due to the implementation of new OPEC+ quotas. Although the decline in production will affect economic growth, there may also be a positive impact on external accounts, reserves and the budget deficit, as revenues could grow. In this sense, the implementation of oil production cuts could be beneficial for Arabia and other oil-exporting countries in the long run.

Saudi Arabia is one of the world's leading oil producers and has long been a highly oil-dependent economy. However, in recent years, the country has been implementing an ambitious economic transformation plan known as Vision 2030. Mohammed bin Salman, Crown Prince and de facto leader of Saudi Arabia, is the main driver of this economic transformation plan known as Vision 2030. 

On several occasions, he has stressed the importance of reducing the country's dependence on oil revenues and diversifying the economy through investment in other sectors. In a speech in 2016, the crown prince noted that 'oil is no longer a reliable source for the Saudi economy', and that 'dependence on oil has hindered the development of other sectors'. In this regard, he stressed the importance of investing in other sectors to boost economic growth and create jobs. Since then, the crown prince has led the implementation of various policies and reforms to diversify the economy, including privatising state-owned enterprises, investing in renewable energy, encouraging foreign investment and creating a tourism industry. One of the main goals of the plan is to increase private sector participation in the Arab economy, which is expected to lead to greater efficiency and productivity. To achieve this, the government has implemented a series of regulatory reforms and increased investment in sectors such as technology and innovation.

While Saudi Arabia's Vision 2030 is an ambitious plan and has the potential to transform the country's economy, it also faces significant challenges. One of the biggest challenges is the effective implementation of the plan, as it requires careful coordination and significant investment. 

According to Jihad Azour, growth in the non-oil economy is mainly driven by the private sector. As the country continues to move forward with its diversification plan, it is likely to further decrease its dependence on oil and increase its economic resilience.