Saudi Arabia flag Saudi Arabia: Economic and Political Overview

The economic context of Saudi Arabia

Economic Indicators

Saudi Arabia is the largest economy in the Middle East and the richest Arab country. The policy of large-scale public works undertaken by the authorities, as well as foreign direct investment and the soundness of the banking and financial system, have enabled the country to become the number one regional economy and one of the largest in the world. However, the economy of Saudi Arabia is almost entirely based on oil, with GDP growth being closely linked to real oil growth. After the sustained growth recorded in 2022 (+8.7%) due to high oil prices, GDP decelerated to 0.8% in 2023 amid unfavourable base effect, reductions in oil production (-7%), and decreased energy prices. Increasing investment and private consumption should be the main drivers in 2024, with the IMF forecasting a growth rate of 4%, with a further uptick to 4.2% the following year.

In 2023, Saudi Arabia reported a budget deficit instead of the previously anticipated surplus, primarily attributed to "expansionary" spending strategies and "conservative revenue estimates." The government anticipates a budget deficit of 1.9% of GDP in 2024, followed by 1.6% in 2025, and 2.3% in 2026. Total expenditure rose to SAR 1.262 billion in 2023, from an earlier estimate of SAR 1.114 billion, and should slow down marginally to SAR 1.251 billion in 2024. The government aims to maintain fiscal discipline by reducing subsidy spending and capital expenditure, leveraging the sovereign wealth fund. Nevertheless, addressing the public wage bill, which constitutes approximately 40-45% of total fiscal expenditures, will be crucial in reducing the budget deficit. According to official figures, as of December 2023, Saudi Arabia's total outstanding direct indebtedness stood at SAR 1,050.3 billion (equivalent to USD 280.1 billion), consisting of SAR 644.4 billion (USD 171.8 billion) in domestic indebtedness and SAR 405.9 billion (USD 108.2 billion) in external indebtedness. The IMF estimated the overall debt-to-GDP ratio at 24.1% in 2023, with an expected decrease to 20.7% by 2025. Meanwhile, inflation inched down to 2.5% but it still  hovered above the 2010-2022 average of 2% on the back of robust demand for housing and tourism inflows.

The standard of living in Saudi Arabia is one of the highest in the Middle East, with a GDP per capita (PPP) of USD 68,453  (IMF, 2023). According to the latest data available from the Saudi General Authority for Statistics, unemployment among Saudis rose to 8.6% in the third quarter of 2023, compared to 8.3% in the second quarter of the year, while the overall unemployment rate stood at 5.1%.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 1,108.151,069.441,109.511,150.511,188.13
GDP (Constant Prices, Annual % Change) 8.70.84.04.23.3
GDP per Capita (USD) 34,44132,58633,14433,69534,115
General Government Gross Debt (in % of GDP) 23.824.122.420.719.2
Inflation Rate (%) n/a2.52.22.02.0
Unemployment Rate (% of the Labour Force) 5.60.00.00.00.0
Current Account (billions USD) 150.7563.5959.8650.7636.10
Current Account (in % of GDP) 13.65.95.44.43.0

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

Agriculture accounts for 2.4% of Saudi Arabia’s GDP and employs 2% of the active population (World Bank, latest data available). Because of geographical and climatic constraints (droughts), Saudi Arabia imports most of its agricultural and food product requirements. Water scarcity is a serious regional problem that the country is likely to face in the coming years, as the growing cultivation of wheat presents the threat of water depletion. Saudi Arabia is the largest market for agriculture in the GCC region; however, productivity remains limited compared with the public investment that funds the sector. According to official figures, the agricultural contribution to GDP amounted to about USD 19.37 billion in 2022. In the last five years, organic food farming increased by 18% to 52.800 tons.

The industrial sector represents 53.2% of the GDP and employs 20% of the workforce. It is dominated by non-manufacturing activities (oil drilling). The country has the largest oil reserves in the world and is also the largest producer and exporter of oil in the world. Oil accounts for nearly 90% of exports and 70% of government revenues (and more than 40% of GDP). The share of the non-oil industrial sector has been increasing along with the economic diversification efforts of the Saudi authorities (although manufacturing currently represents only 14% of GDP). According to the General Authority for Statistics, after growing in the first four months of 2023, the industrial production index decreased for seven consecutive months between May and November.

Lastly, services represent 52.2% of the GDP and employ 73% of the active population. This sector is mainly dominated by tourism, financial and banking services, and the insurance sector. Tourism generates very high revenues (almost 4 million tourists per year), due in particular to the Hajj, the pilgrimage to Mecca that takes place in the last month of the Islamic year, that all Muslims are expected to make at least once during their lifetime. The Saudi government launched the “Financial Sector Development Program”, aimed at enabling financial institutions to support the growth of the private sector, develop an advanced capital market and improve financial planning. Despite facing tighter liquidity, Saudi banks are expected to maintain healthy performance metrics in 2023, thanks to the favorable operating conditions that will sustain profitability. In 2022, the average operating profit to risk-weighted assets ratio for Fitch-rated Saudi banks stood at 2.7%.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 2.7 20.0 77.3
Value Added (in % of GDP) 2.4 53.3 39.2
Value Added (Annual % Change) 3.9 12.8 4.3

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
66/100
World Rank:
63
Regional Rank:
5


 

Business environment ranking

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:
6.71/10
World Rank:
42/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025

 

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Latest Update: February 2024

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