The International Monetary Fund (IMF) expects OPEC and its partners to begin gradually increasing oil production starting in July, a transitional process that would return Saudi Arabia to the ranks of the fastest growing economies in the world next year, according to Bloomberg.
“We assume that the complete reversal of the cuts will occur at the beginning of 2025,” according to statements by Amine Mati, head of the lending institution’s mission to Saudi Arabia, in an interview in Washington, where the IMF and the World Bank (WB) are holding their spring meetings.
This view explains why the IMF has become more optimistic about Saudi Arabia, whose economy contracted last year, as it led the OPEC+ alliance alongside Russia in production cuts that reduced supplies and pushed oil prices higher. In 2022, record crude production pushed the Saudi economy to record the fastest growth in the G20 countries.
Second Fastest-growing Major Economy in 2025
According to its latest forecasts published this week, IMF raised its estimate of the growth rate of the economy of the world’s largest oil exporter from 5.5% to 6%, ranking second after India among major economies. The recovery will be among the fastest jumps in the Kingdom’s economy over the past decade.
IMF expects Saudi Arabia’s oil production to reach 10 million barrels per day in early 2025, from its lowest level now in three years at 9 million barrels. Saudi Arabia says its production capacity is about 12 million barrels per day; it has rarely pumped at these current low levels over the past decade.
Mati explained that IMF slightly lowered its growth forecast for the Saudi economy this year to 2.6% from 2.7% based on actual 2023 numbers and extended production restrictions until June. Bloomberg Economics expects growth of 1.1% in 2024 and assumes that production cuts will continue until the end of this year.
Escalating hostilities in the Middle East provide conditions for a potential policy shift after oil prices exceeded $90 a barrel for the first time in months. The Organization of the Petroleum Exporting Countries and its allies are expected to meet on June 1. Some analysts expect the organization to begin easing production restrictions.
Pumping More to Meet Fiscal Deficit
After sacrificing sales volume to support the oil market, Saudi Arabia may instead choose to pump more as it faces years of fiscal deficits and with crude oil prices remaining lower than it needs to balance the budget.
Saudi Arabia is spending hundreds of billions of dollars to diversify its economy, which still relies on oil and its closely related derivatives – petrochemicals and plastics – for more than 90% of its exports.
The restrictive US monetary policy is not expected to necessarily constitute a burden on the Kingdom, which usually moves in concert with the Federal Reserve to protect its currency’s peg to the dollar.
Mati expects a “minimal” impact from a potential delay in the Fed’s interest rate cuts, given the structure of Saudi banks’ balance sheets and the Kingdom’s abundant liquidity thanks to higher oil prices. In a parallel context, he said that the IMF also expects “the growth momentum of the non-oil sector to remain strong” over the next two years at least, driven by the Kingdom’s plans to develop industries from manufacturing to logistics services.
“Saudi Arabia “has already undertaken many transformative reforms, and is taking a lot of the right actions in terms of the regulatory environment,” Mati noted. “However I think it will take some time to implement some of these reforms.”
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