Real GDP growth is projected to moderate from 4.5% in 2025 to 3.2% in 2026, before recovering to 4.3% in 2027, reflecting the evolving conflict in the Middle East. Oil exports have declined by approximately a third due to constraints on shipping in the Gulf but supported by the pipeline to the Red Sea. Non-oil GDP is expected to remain resilient, supported by higher revenues, strong domestic demand, underpinned by strong labour market conditions, rising labour force participation, and moderating inflation as higher oil commodity prices are not transmitted into pump prices.
The government has used the substantial budget deficit to frontload infrastructure investment, targeting projects that would favour economic diversification. There remains scope to reduce the reliance on social benefits, enhance the efficiency of public investment, particularly in infrastructure and housing, and strengthen domestic revenue mobilisation. Further increasing labour market participation would support the economic diversification strategy and strengthen public finances. Monetary policy is expected to remain consistent with the peg to the US dollar.
