Economic analysis
Saudi Arabia

Saudi Arabia

Population 31.7 million
GDP per capita 20,365 US$
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major macro economic indicators

Main economic indicators 2015 2016 2017(f) 2018(f)
GDP growth (%) 4.1 1.7 -0.5 1.2
Inflation (yearly average, %) 2.2 3.6 0.2 4.9
Budget balance (% GDP) -15.8 -17.1 -8.6 -7.6
Current account balance (% GDP) -8.7 -4.2 0.6 2.4
Public debt (% GDP) 5.8 13.0 17.0 20.6

(f): forecast


  • One quarter of world oil reserves and leading producer in OPEC
  • Major regional economic and political player
  • Increasing economic diversification advanced by Saudi Vision 2030 programme
  • Solid financial situation thanks to low debt levels and sizeable assets
  • Solid banking system


  • Level of dependence on oil and gas sector, poor job creator, and growing domestic energy demand
  • High unemployment rate of local population
  • Governance failings undermining business climate
  • Unstable geopolitical context
  • Low rate of participation of women in labour market
  • Economy dependent on public spending


Weak recovery in 2018

The combined effects of reduced oil production oil, as a result of the OPEC agreement, and budgetary consolidation drove the Saudi economy into recession in 2017. Saudi Arabia agreed in November 2016 to reduce its oil production by 400,000 barrels, as defined in the Vienna Agreement. This latter, covering both OPEC member and non-member countries, is expected to be renewed in 2018 applying the same quotas. This means that there will only very limited growth in the volume of production from the Kingdom. In the context of the challenges facing the Saudi economy, the Heir Apparent, Prince Mohamed Ben Salman, launched the Saudi Vision 2030 programme in 2016, which started to bear fruit in 2017. This huge modernisation programme has three major elements: the creation of a Public Investment Fund (PIF) financed with the privatisation of state owned companies, including 5% of Aramco, the national oil company; the National Transformation Plan (NTP); and the 2020 Budget Adjustment Plan. This latter includes a freeze on bonuses and wages for government employees (67% of the Saudi workforce), reduced energy subsidies and cuts to public investments. These measures have had a negative impact on demand. Despite an inflation rate hovering around zero, those sectors linked with household consumption, such as retail and leisure (8% of GDP) and those dependent on public expenditure (construction: 4.7% of GDP) recorded negative performances. Although the reintroduction of bonuses for the public sector had only a limited impact in boosting consumption in the second-half of the year, they should prove more useful in 2018 as purchasing power increases. Whilst the increase in oil prices will give the authorities more room for manoeuvre for a more expansionary budget policy, the rise in inflation following the imposition of value added tax will work to limit the positive effects of increased public spending on the level of activity. The recovery in the non-oil economy is expected to continue gradually in 2018, at the same time as certain sectors, such as construction, should quickly start feeling the benefits of the restarting of investment projects. Measures aimed at boosting employment among the Saudi population should help bring down the unemployment rate from its level of 12.8% in 2017. Credit will be less constrained by the contraction in liquidity in the money markets with the slowing of public debt issues on the domestic market. The improvement in financing terms will help boost the weak recovery in the private sector.


Continued budget consolidation and return to current account surplus

Given the scale of the public deficit since 2014, the Saudis authorities launched a major budget consolidation programme in 2017. Its aim was to restore budget equilibrium within a three year target with a focus on three elements: a rationalisation of public spending, the gradual removal of subsidies and increasing non-oil budget revenues. Although it resulted in a significant reduction in the size of the large deficit, the negative effects of the measures in terms of economic activity forced the authorities to revise their strategy for 2018. The application of VAT across all countries in the GCC and the widening of the tax base are nevertheless likely to be enforced. The reduction in subsidies will however become more gradual with an objective of 100% of the prices indexed against world market prices in 2023. Spending linked with the wage bill and investment is likely to rise. The financing of the public debt is likely to continue in the form of bond issues in the international market in order to avoid the soaking up of all liquidity within the banking system and slow the fall in the reserves of the SAMA.

The rise in the value of exports thanks to oil prices and the reduction in imports and foreign worker remittances as a result of the slowing in economic activity led to a significant fall in the size of the current account deficit in 2017 with a diminishing in the risk linked with the pegging of the rial to the dollar. The continuation of these elements in 2018 should help return the accounts to surplus.


Emergence of new strongman

Palace revolution or structural transformation of the regime, 2017 was a turning point in Saudi political history. Mohamed Ben Salman was designated on 21 June 2017 as first in the line of succession by King Salman and the royal family’s Allegiance Council to replace his cousin Mohammed ben Nayef. This nomination with the heir apparent holding power in all economic and security matters since 2015 highlights the profound transformations taking place in the Kingdom’s political configuration from an adelphic monarchy to an hereditary regime. The fight against corruption that led to the arrest of more than 200 people including businessmen and members of the royal family sent a strong signal to Saudi society as well as to the opposition, whether tribal, clerical or business. In terms of foreign policy the recent rapprochement with the United States has encouraged the Kingdom in playing a more active role in regional politics and in particular its opposition to the Iranian Republic. Tensions between the two countries are constantly increasing with repercussions throughout the region, working to undermine the fragile political equilibrium of the whole of the Middle-East.


Last update: January 2018

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