Saudi Arabia

Saudi Arabia’s economic structure is unbalanced. The country possesses the world’s second-largest proven oil reserves (>15% of global resources) and, at current rates of extraction, its oil will last for over 60 years. In addition, gas reserves will last for a further 70 years or so. Hydrocarbons account for around 30% of GDP and 70% of export earnings (2021). Such a relatively narrow output base, with very slow progress in diversification into other industries and services (other than downstream activities), leaves the economy vulnerable to world oil price cycles. However, in times of high oil prices, large surpluses in the fiscal and current accounts have been accompanied by a build-up in foreign assets and in special sovereign wealth funds (SWFs) established to serve future generations. The total reserve assets managed by SAMA (Saudi Arabian Monetary Authority) are officially recorded at around USD450bn (as of early 2022) – these reserves include financial assets held by the SAMA Foreign Holdings SWF. Another SWF, the Public Investment Fund, currently holds around USD620bn.

Saudi Arabia’s public finances will strengthen in 2022-2023, thanks to the surge in global oil and gas prices, after they had weakened during 2014-2021 when lower prices led to a substantial drop in fiscal revenues compared to the decade before that. After eight years of annual deficits, we expect the fiscal account to post a sizeable surplus of at least +5% of GDP in 2022 and to remain in surplus in 2023. Since 2016, Saudi Arabia has successfully turned to the international bond market in order to cover its external financing requirements. As a consequence, public debt rose from just 2% of GDP in 2014 to 32% in 2020. While at this level it was still relatively low compared to peers, the trajectory has been worrisome. However, for now we forecast the ratio to fall below 30% in 2022-2023, thanks to the rebound in hydrocarbon revenues.

Saudi Arabia’s annual current account balance also shifted to substantial deficits in 2015-2016 in the wake of the oil price slump at the time, after 15 years of very high surpluses. It posted another shortfall in 2020 due to the renewed oil price slump in the wake of the Covid-19 crisis. Increasing prices in 2021 moved the current account back to +6.6% of GDP surplus, which we expect to widen to double digits in 2022-2023, thanks to even higher prices. Meanwhile, gross external debt in Saudi Arabia has increased from 12% of GDP in 2014 to 34% in 2021. This was, however, still a relatively low level in comparison to peers. It should not rise further in the next two years, thanks to the improved macroeconomic environment for the country.

Foreign exchange reserves held at SAMA fell steadily from a peak of USD746bn in August 2014 to USD450bn in mid-2020 and have since been relatively stable around that level. Despite the decline, current reserves are still sufficient to cover more than 20 months of imports, a very comfortable ratio.