IMF: Saudi Arabia’s financial buffers withstand regional war shocks

Jihad Azour, Director of the Middle East and Central Asia Department at the International Monetary Fund (IMF), has affirmed that Saudi Arabia possesses strong financial buffers enabling it to withstand the repercussions of the ongoing regional war. He described the situation as a "multi-dimensional shock" affecting the broader Middle East, yet emphasized the Kingdom's resilience due to ample external and fiscal reserves. According to Azour's interview with Asharq Al-Awsat, these buffers include robust net foreign assets and low debt levels, positioning Saudi Arabia among the least indebted nations globally at around 17 percent of GDP.

Saudi Arabia's economy has shown notable strength amid these pressures, with non-oil sectors expanding, inflation under control, and unemployment at record lows, as detailed in the IMF's 2025 Article IV Mission concluding statement. The Saudi Central Bank's net foreign assets stood at $415 billion by the end of 2024, covering 15 months of imports and far exceeding reserve adequacy metrics. Recent data indicates reserves have climbed even higher, reaching a six-year peak of $475 billion in early 2026, bolstered by rising foreign currency holdings and contributions to global financial stability efforts, including a major agreement with the IMF for capacity development.

These buffers are critical as the Kingdom navigates twin deficits—fiscal and current account—stemming from lower oil proceeds and heightened imports tied to investments. The IMF endorses a higher-than-budgeted fiscal deficit for 2025 to avoid procyclical cuts that could harm growth, given the low public debt at about 26 percent of GDP. Financing comes through external borrowing, deposit drawdowns, and reduced foreign asset accumulation, with additional support from the Public Investment Fund's holdings, maintaining import coverage at 11-12 months over the medium term.

The war's fallout underscores why these financial strengths matter: they shield Saudi Arabia and the Gulf region from broader disruptions, such as potential trade route vulnerabilities, while alternative export paths like the East-West pipeline provide flexibility. Standard & Poor's has highlighted the Kingdom's stable credit rating and prudent policies, noting years of reforms diversifying income and enhancing logistics. This resilience affects millions in the region, supporting jobs in non-oil growth and Vision 2030 projects amid global uncertainty.

Looking ahead, the IMF recommends fiscal adjustments, including higher taxes on property, broader value-added tax coverage, ending energy subsidies, and curbing wage growth to narrow deficits in coming years—projected to shrink to 3.3 percent of GDP in 2026 through recalibrated Vision 2030 spending. Banking sector measures, like elevated countercyclical capital buffers and tighter lending ratios, address credit growth risks without derailing economic ambitions. The dollar peg remains the preferred exchange rate anchor, ensuring stability as Saudi Arabia balances war shocks with long-term transformation.