IMF predicts slower-growing but resilient Saudi economy

• Saudi Arabia has low debt and large reserves
• Shielded from worst effects of Iran war
• 2% GDP growth predicted

Robust economic fundamentals and a diversified infrastructure for the transport of crude oil and other goods are shielding Saudi Arabia from the worst impacts of the US-Israeli war with Iran, according to the International Monetary Fund.

The disruption in the Strait of Hormuz has reduced the kingdom’s oil exports and weighed on non-hydrocarbon output, IMF mission chief for Saudi Arabia Azim Sadikov said on Tuesday.

But while the conflict dented confidence and economic momentum, Saudi Arabia’s low public debt, substantial reserves and sizeable financial buffers helped to limit the economic fallout.

“A prompt rerouting of oil through the East-West pipeline and Red Sea ports, combined with Aramco’s overseas inventories, has helped limit the drop in oil deliveries,” Sadikov said. “High-frequency indicators point to some stabilisation in non-oil activity in April following a likely contraction in March.”

The findings follow an IMF staff visit to Riyadh between April 28 and May 13.

The financial firepower of the Public Investment Fund, the country’s sovereign wealth vehicle, also gives Saudi Arabia additional resources should the crisis prove more prolonged, according to Sadikov.

Although the ceasefire that took effect on April 8 has largely halted the fighting, sporadic incidents continue and the outlook for negotiations between Washington and Tehran remains uncertain, the IMF said.

If shipping through Hormuz returned to normal levels in the coming months, Saudi Arabia could experience a recovery and record around 2 percent growth for 2026, the IMF said.

That is notably lower than the 4.5 percent GDP growth recorded last year, but still holding up, Sadikov said: “Average inflation is projected to increase to about 2.3 percent as higher shipping and insurance costs add upward pressure on prices.”

Elevated oil prices as a result of the war are forecast to make up for reduced export volumes, and should provide some relief for the current account and fiscal balances this year, the IMF said.

Sadikov urged Saudi officials to stand ready with an ambitious reform package, including an overhaul of energy subsidies, to bring about fiscal consolidation after the situation normalises.

The IMF team welcomed PIF’s revised strategy for the next five years, citing its focus on “more selective capital allocation and greater private-sector crowding-in”.

Improving Saudi Arabia’s business environment, capital markets, support for small and medium-enterprises and education system are among the priorities Sadikov identified for the kingdom.

Positive signs from PMI

Saudi Arabia’s non-oil private sector reported a resurgence in May, according to the latest monthly findings of the Riyad Bank Saudi Arabia Purchasing Managers’ Index, as domestic demand improved and supply chains stabilised.

PMI rose to 52.8 in May from 51.5 in April. The index was at 48.8 in March. A PMI score above 50 represents growth, while a reading below 50 indicates contraction.

“Firms reported better business conditions during May, with output growth reaching its strongest level in three months,” said Naif Al-Ghaith, chief economist at Riyad Bank.

“Employment also returned to growth, while purchasing activity improved for the first time since February, reflecting rising confidence among businesses regarding future demand conditions.”

The latest PMI reading supports expectations that the country’s non-oil economy will continue its upward trend during the rest of 2026, Ghaith added.

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Despite the IMF’s relatively upbeat assessment, separate World Bank research published this week highlighted persistent structural challenges facing Saudi businesses.

More than half of Saudi businesses participating in a year-long World Bank survey cited access to finance as their biggest challenge, according to the report.

That compares with about one-quarter of companies participating in a broader World Bank survey across the Middle East, North Africa, Afghanistan and Pakistan.

Customs and trade regulations (11 percent), labour regulations (10 percent) and an inadequately educated workforce (9 percent) were other top constraints Saudi companies cited.