Saudi Arabia's economy remains solid and its banks have weathered the global crisis, the IMF said in a report.

It also commended the world's leading oil exporter for helping stabilise oil prices.

'The outlook remains broadly positive' despite a projected one percent contraction in GDP this year due to lower oil production, the International Monetary Fund report was quoted as saying in our sister newspaper Gulf Daily News.

It noted that non-oil GDP, which points to the ability of the economy to create jobs, is expected to grow 3.3 per cent this year on the back of a massive government capital spending programme.

The IMF also said the country's banking system remains on firm ground.

'The banking system has weathered the global crisis. It remains profitable and well-capitalised with low non-performing loans.'

The report emerged from consultations with Saudi Arabia which concluded on July 13.

It was not clear if the impact of the dispute between two leading Saudi business groups, the Algosaibi and Saad groups, which has put an estimated $16 billion of loans from mostly Saudi and Gulf banks at risk, was calculated into the IMF's assessment of the Saudi financial system.

IMF directors commended Saudi Arabia 'for their leadership role in stabilising world oil markets by maintaining their capacity expansion plans despite lower oil prices,' the report said.

They also approved of the exchange rate peg between the US dollar and the Saudi riyal.

'Some directors encouraged the authorities to consider  a more flexible exchange rate regime for the GCC monetary union,' the report said.