Population 28.789 million
GDP 657.049 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
5,1 |
7,1 |
5,5 |
4,5 |
|
Inflation (yearly average) (%)
|
5,4 |
5,0 |
4,5 |
4,0 |
|
Budget balance (% GDP)
|
5,2 |
15,2 |
16,5 |
10,0 |
|
Current account balance (% GDP)
|
15,0 |
27,0 |
26,1 |
17,1 |
|
Public debt (% GDP)
|
10,0 |
7,5 |
5,8 |
5,3 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- A quarter of global oil reserves and leading OPEC producer
- Dominant regional, economic and political role
- Economy undergoing diversification and more open since joining WTO in late 2005
- Solid financial situation
WEAKNESSES
- Strongly dependent on the hydrocarbon sector, contributing little to job creation
- Unsuitable education and training system leading to high unemployment, especially among young people
- Huge inequalities and corruption resulting in social tensions
- Weak governance and conservatism, making for a gloomy business climate
- Uncertainties concerning succession in the reigning royal family
- Unstable geopolitical environment
Risk assessment
Growth still sustained by hydrocarbons and public spending
Down somewhat compared with 2012, growth in 2013 will continue to be sustained by still high hydrocarbon prices. Moreover, activity will remain driven by the continuation of the 5-year $386bn public investment programme (2010-2014), as well as by the package of measures introduced in 2011 costing $130bn (just over 20% of GDP), aimed at defusing social tensions. Over time, these measures will continue to boost household consumption. Moreover, despite a gloomy global economic climate, private and foreign investment will be stimulated by on-going or planned projects: refineries, new onshore and offshore gas fields, petrochemical and aluminium plants, extension of the railway network.
Pressures on prices mainly reflect housing bottlenecks and domestic demand strengthened by high fiscal spending. Inflation, currently the highest among the Gulf states, is, however, expected to fall because of the provision of new social housing and the continued subsidisation of staple commodities.
Large twin surpluses maintained, despite some erosion, and solid financial position
Public finances remain dependent on hydrocarbon revenues (nearly 90% of fiscal revenues). In 2013, despite the high level of spending devoted in particular to the construction of social housing and hospitals, a comfortable budget surplus is expected to be maintained, though lower than that of 2012, thanks to the adjustment of Saudi oil production intended to keep the Brent price to at least $100 per barrel.
For this reason, revenues from exports of hydrocarbons and petrochemical products are likely to remain high and the trade balance strongly in surplus, despite a rise in imports as a result of strong domestic demand. This will largely offset the persistent deficit in services and transfers resulting in a very substantial current account surplus, though lower than that of 2012.
In this context, the Saudi Arabia Monetary Agency will continue to accumulate enormous financial assets abroad, estimated to reach $780bn by the end of 2013, equivalent to more than three years’ exports. The Saudi State is therefore very largely a net external creditor, giving it, despite the size of corporate short-term debt, great capacity to resist any potential though unlikely exchange crisis, especially since the Saudi riyal is pegged to the US dollar.
Social and political weaknesses
The political and social events affecting several Arab countries since 2011 seem to have spared the country, the oil revenues having made it possible to alleviate the social tensions linked to great inequality, high youth unemployment and corruption.
However, the question of King Abdullah’s succession is of great concern because of his advanced age and his precarious health. The adelphic system of succession (whereby a brother succeeds a brother) results in a phenomenon of aging, the present crown prince, Salman, being himself aged 77. It is therefore possible that a generation in the royal succession may in future be skipped; the appointment in November 2012 of Prince Mohammed Ben Nayef, 53, as Minister of the Interior being for this reason revealing. This sovereign ministry is traditionally considered as a spring board for accession to the throne.
Business environment has room for improvement
In 2013 private sector growth is expected to be similar to that of the overall economy and the financial health of companies is likely to be relatively satisfactory, even though, chiefly because of SMEs’ difficulties in gaining access to bank credit, payment defaults cannot be ruled out. Highly concentrated, the Saudi banking system – the biggest in the Middle East and in the world for Islamic finance - is well capitalised, liquid and profitable.
However, modernisation of the kingdom is slowed by limited institutional capacity, burdensome bureaucracy and the resistance of conservative circles. Moreover, despite the efforts to improve the business environment, the legal system does not offer all the guarantees needed to enforce creditors’ rights and company accounts are often opaque, which complicates the assessment of risk. Nevertheless, the payment behaviour of private businesses is expected to remain distinctly better than the world average observed by Coface.
