An extract from The Projects and Construction Review, 12th Edition
Saudi Arabia is the largest market economy in the Middle East and North Africa in terms of gross domestic product (GDP)2 and, with 33 per cent of the world's proven petroleum reserves, the largest exporter of oil in the world.3 It has a population of approximately 33.4 million,4 39 per cent of whom are below the age of 25.5 years.
Thus far, 2022 has seen economic recovery and revived growth following the difficult period resulting from the outbreak of the covid-19 pandemic. Owing to the government's efforts in combating the virus (which minimised its negative impact on the economy), economic activities in the Kingdom have experienced positive growth over the past year. In the first half of 2021, non-oil domestic products grew by 5.4 per cent and there was a 7.5 per cent real increase in private sector activity. The emphasis that the government placed on social benefits and subsidies for sectors affected by the pandemic produced tangible results to ensure harmed parties receive essential services.
Saudi Arabia has also continued enforcing its financial policies to ensure increasing non-oil revenue, which has experienced dramatic fluctuations, as well as to raise spending efficiency and increase the level of private sector participation in the economy.
The year in review
The overall economy is in a recovery phase following the covid-19 pandemic. The rebound started early in 2021 and was driven mainly by the various stimulus packages that the government implemented to boost the economy, coupled with the relaxation of precautionary measures that were implemented to combat the spread of covid-19. In addition, covid-19 vaccination campaigns were successfully launched and implemented, which led to a high percentage of immunisation across the Kingdom.
Oil markets also recovered significantly from the collapse they suffered during the crisis, where oil prices registered at US$67 in August 2021. The production of the Kingdom was at 8.8 million barrels per day in the year to August 2021.
The government has also instituted several other programmes to boost the economy, including, but not limited to, the Public Investment Fund plans to inject approximately 150 billion Saudi riyals into the national economy on an annual basis until 2025. A number of other megaprojects are also underway, such as:
- the Neom project, which is a planned eco-city and part of the Saudi Vision 2030;
- the Red Sea Project, managed by the Red Sea Development Company, which is a planned tourism and hospitality destination;
- the Qiddiya project, which is a planned entertainment destination and part of the Saudi Vision 2030;
- the Amaala project, also managed by the Red Sea Development Company, which is a planned luxury tourism destination; and
- the ROSHN residential project, a national community developer and Public Investment Fund project focused on responding to homeownership demands across the Kingdom.
The budget deficit remains under control and is projected to be approximately 1.6 per cent of GDP in 2022 (in 2020, the expected budget deficit was 298 billion Saudi riyals, which is approximately 12 per cent of GDP). Revenues in 2022 are expected to reach 903 billion Saudi riyals, which is a decrease of 2.9 per cent from the projected figure in the 2021 financial year. This reflects a conservative and precautionary approach in budgeting oil and non-oil revenues, taking into account the risk of a resurgence of covid-19. These revenues are projected to grow to 992 billion Saudi riyals in 2024, fuelled by the recovery of economic activities.
Total expenditure is estimated to drop from 1.015 trillion Saudi riyals to 955 billion Saudi riyals, which represents 30.2 per cent of GDP. These numbers reflect the government's commitment to continue spending on its megaprojects while increasing the efficiency of spending and achieving the targets of the Saudi Vision 2030.
The Saudi Vision 2030 continues to be a significant transformation of the whole Saudi economy, especially with the efforts the government has put in place to implement it through the vision realisation programme initiatives, and structural, economic and fiscal reforms to diversify the economic base. These initiatives have proven to be of significant value, as they achieved major technological transformations in government operations that allowed a smooth transition for employees to work remotely during the lockdown period of the pandemic, which significantly minimised the overall impact of the pandemic on the economy.
Moreover, non-oil revenue development initiatives that were implemented during past years compensated for the lost oil revenue that the Kingdom experienced in 2020 as a result of the significant drop in oil prices during the pandemic, as well as the significant drop in oil production during that period. These initiatives have also prepared Saudi Arabia for a more agile future that is not dependent on the performance of oil revenues. The financial policy implemented by Saudi Arabia in the past few years has been a significant contributor to enabling the country to efficiently manage the covid-19 pandemic and provide the stimulus to preserve its economic outlook.
Outlook and conclusions
Over the short and medium term, the Kingdom is taking significant steps to support the ongoing gradual recovery in economic activity and reducing the impact of covid-19 on the economy. The Kingdom is expected to maintain its commitment to implementing the initiatives that have been in place in recent years, in addition to upholding the commitment to achieving the goals of the Saudi Vision 2030. These goals are intended to reduce the Kingdom's reliance on oil as a primary source of revenue and increase non-oil revenues that will ensure long-term sustainability.
Over the medium and long term, the Kingdom is expected to sustain ongoing economic growth supported by the economic enablers that the government has enacted. These enablers are driven by the projects and programmes of strategic entities such as the Public Investment Fund, the National Development Fund, the National Industrial Development and Logistics Programme, the National Investment Strategy, the Financial Sector Development Programme and privatisation programmes.