World Bank expects Saudi oil sector to grow by 13% in 2022, slowdown in inflation rate

Issam Abu Sulaiman, Regional Director for GCC, World Bank

Saudi Arabia’s oil sector is expected to grow 13% in 2022 after the end of the oil output cuts applied by OPEC+ in December 2022, Issam Abu Sulaiman, Regional Director for GCC, World Bank, told Argaam in an exclusive. 

He also predicted the non-oil sector to extend its growth trajectory, which is estimated at 4% for 2022 and 3.2% in the medium term. 

The Saudi economy is projected to accelerate to 7% in 2022, driven by an increase in oil output and higher prices, before declining to 3.8% and 3% in 2023 and 2024, respectively. 

This is due to the strong performance of the oil and gas sector that will likely grow by 12% in 2022 amid the gradual anticipated increase in supplies among OPEC+ countries. 

Inflation is estimated to slow down and stabilize at 2% in 2022, compared to 3.1% in 2021, as the impact of the value-added tax (VAT) increase dissipates due to rising US dollar and the tightening of monetary policy. 

Abu Sulaiman stated that the GCC’s central banks will continue to adopt a contractionary monetary policy, as the US Federal Reserve is  forecast to extend the path of raising interest rates. 

He explained that higher interest rates will create adverse conditions for domestic demand, as consumption and investments are predicted to retreat. However, they will reduce inflationary pressures. 

The top official expected the inflation rate in Saudi Arabia to reach 2% from 2023 to 2024, which is much lower than other markets. 

Providing energy at low prices has drained resources that could have been invested in modern social safety networks, infrastructure, education, healthcare, or saved for the benefit of future generations, Abu Sulaiman highlighted. 

He stated that the GCC’s national commitments and current project are on the right track to save 354 million barrels of oil equivalent by utilizing renewable energy sources by 2030.  

This represents a 23% reduction in oil consumption, which is expected to create more than 220,000 jobs. 

The reduction in oil consumption will reduce carbon dioxide emissions in the energy sector, as well as the sector’s water consumption by 22% and 17%, respectively. 

He noted that the cost of renewable energy is lower than the cost of energy generated by oil and gas. Also, efficiency gains from utilizing renewable energy sources enhance public finances and balance of payments. 

Abu Sulaiman stressed that accelerating the transition to renewable energy should be a major goal, which will contribute to maximizing foreign direct investment (FDI) in light of an appropriate environment for public-private partnerships.