IMF: Deepening the Saudi financial market enhances diversification of funding sources and financial sector stability

The Executive Board of the International Monetary Fund commended the continued progress in deepening the Saudi financial market, stressing that this development contributes to diversifying funding sources and reducing reliance on the banking sector, which is an important step within the framework of Saudi Vision 2030 to diversify the economy.

The Fund emphasized that the financial market represents a key axis in driving domestic financing, supporting private investment, and achieving intergenerational equity through gradual fiscal consolidation and increasing non-oil revenues. The Capital Market Authority’s strategic plan (2024-2026) was adopted to build on its achievements and record numbers. The number of listed companies exceeded 310 by the end of 2023, compared to 204 in 2019, a 52% increase. This is in addition to the unprecedented growth in the asset management industry, whose value rose domestically from SAR 500 billion in 2019 to SAR 871 billion in 2023, an increase of approximately 74%. Total international investments in various asset classes (stocks, sukuk, debt instruments, and investment funds) in the financial market also witnessed historic increases, exceeding SAR 480 billion by the end of 2023, compared to SAR 259 billion in 2019, a growth of 88%. The Capital Market Authority’s strategic plan (2024-2026) is based on three main pillars comprising nine strategic objectives. It includes a package of ambitious initiatives to achieve these objectives. The first pillar aims to activate the role of the financial market in financing and investment by enhancing the role of the stock market and equity in financing, developing the sukuk and debt instruments market, enabling the growth of the asset management industry in the Kingdom, and enhancing the services of the Saudi financial market to attract more international investment.

The second pillar aims to empower the financial market system by supporting and empowering financial market institutions and supporting financial technology in the financial sector. The third pillar aims to protect investor rights by enhancing transparency and oversight, facilitating redress, and strengthening mechanisms for dealing with specific cases and deterrence. The Authority has developed a set of initiatives, through which it seeks to achieve several objectives in the strategic plan (2024-2026). To activate the role of the financial market in financing and investment, the Authority will work to enable the listing of special purpose acquisition companies (SPACs) on the parallel market and enable the offering of Saudi depositary receipts. In an effort to stimulate the asset management industry’s growth, the Authority will work to develop the regulatory framework for financing funds, enable the establishment of more flexible fund structures, and develop regulatory frameworks to increase and decrease the total asset value of public and traded closed-end investment funds.

With regard to developing the sukuk and debt instruments market, the Authority will work to establish a regulatory framework for green, social, and sustainable debt instruments, facilitate regulatory frameworks for the offering, listing, and registration of debt instruments, and develop a regulatory framework for the issuance of sukuk and debt instruments by traded closed-end real estate funds. Through its strategic plan, the CMA aims to enhance the market’s attractiveness to foreign investors and position the Saudi financial market as a regional and international leader. The CMA also aims to grow the volume of assets under management and double the number of companies licensed to practice financial technology activities in the market by the end of 2026.

With regard to empowering the financial market system, the CMA has adopted a number of initiatives, including developing investment account instructions, activating fund administrative services, studying amendments to the minimum capital requirement for custody activities, and enabling the implementation of open finance within the financial market.

With regard to protecting investor rights, the CMA has undertaken to develop class action compensation procedures, support and assistance to investors in private equity, and improve the complaints handling process between financial market institutions and their clients. To enhance transparency, the CMA will work to develop corporate governance regulations, enhance the efficiency of investment fund governance and the responsibilities of board members, in addition to a number of development initiatives.