Economic and Political Overview

flag Saudi Arabia Saudi Arabia: Economic and Political Overview

In this page: Economic Outline | Political Outline | COVID-19 Country Response

 

Economic Outline

Economic Overview

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

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. In 2021, increasing oil prices and the stabilization of the COVID-19 pandemic contributed to an estimated GDP growth of 2.8% (IMF). The forecasts of the Ministry of Finance, the OECD and the IMF agree on a growth rate of 4.8% in 2022, thanks to the expansion of hydrocarbon activity and resumption of capital projects, before returning again to 2.8% in 2023.

Low oil revenue weighed on Saudi Arabia's current account balance as a consequence of the global pandemic, with an estimated budget deficit of USD 17.1 billion in 2021. Such deficit is likely to be narrowed down to USD 13.8 billion in 2022, as the government projects a surplus in both 2023 and 2024. The measure taken to curb the impact of COVID-19 on the private sector entailed an increase in public debt, which stood at 29.7% in 2021 (from 22.8% before the pandemic). The debt-to-GDP ratio is expected to further increase this year (30.8%) before taking a downward trend in 2023 (30.4% - IMF). Inflation picked up to 3.2% in 2021 partly as a consequence of the hike in the VAT rate from 5% to 15%, and should stabilize around 2% in the upcoming years.

The standard of living in Saudi Arabia is one of the highest in the Middle East, with a GDP per capita of over USD 48,000 (PPP – IMF). According to the latest data available from the Saudi General Authority for Statistics, the unemployment rate of the total working-age population (Saudis and non- Saudis 15 years and above) decreased to 6.6% in the second quarter of 2021; whereas the unemployment rate of total Saudis (males and females 15 years and above), decreased to 11.3% in the same period. Nevertheless, the unemployment rate is much higher for female citizens compared to the male population (22.3% vs. 6.1%).

 
Main Indicators 201920202021 (e)2022 (e)2023 (e)
GDP (billions USD) 792.97e700.12e842.59876.15899.11
GDP (Constant Prices, Annual % Change) 0.3e-4.1e2.94.82.8
GDP per Capita (USD) 23,174e19,996e23,76224,22424,372
General Government Gross Debt (in % of GDP) 22.832.5e29.730.830.4
Inflation Rate (%) -2.13.4e3.22.22.0
Unemployment Rate (% of the Labour Force) 5.77.4e0.00.00.0
Current Account (billions USD) 38.23-19.65e32.6133.1719.70
Current Account (in % of GDP) 4.8-2.8e3.93.82.2

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

 

Main Sectors of Industry

Agriculture accounts for 2.6% 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.

The industrial sector represents 41.4% of the GDP and employs 25% 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 80% 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 13% of GDP).

Lastly, services represent 56.2% 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.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 2.4 24.8 72.8
Value Added (in % of GDP) 2.6 41.4 56.2
Value Added (Annual % Change) -1.7 -5.8 -1.8

Source: World Bank, Latest available data.

 

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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

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

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

 

Country Risk

See the country risk analysis provided by Coface.

 

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Political Outline

Current Political Leaders
King and Prime Minister: Salman bin Abdulaziz al-Saud (since January 2015) - hereditary; the monarch is both chief of state and head of government
Crown Prince: Mohammad bin Salman bin Abdulaziz Al-Saud (born 31 August 1985)
Next Election Dates
None; the monarchy is hereditary
Current Political Context
Saudi Crown Prince Mohammed bin Salman and authorities continued to make efforts to improve the country's image both from a political and financial perspective. Fiscal consolidation involving cuts in social benefits and planned tax increases in the country may bring down household income. However, despite possible social discontent, political instability is not expected in the short term.
Main Political Parties
There are no political parties. However, certain political movements may exist (Islamists, Communists, Liberals, Greens, etc.), in the form of illegal organizations. The first municipal elections in Saudi Arabia took place in 2005.
Type of State
Saudi Arabia is an absolute monarchy in which the King has supreme powers.
Executive Power
The King is both the Chief of State and the head of the Government. The monarchy is hereditary. The Council of Ministers (cabinet) is appointed by the Monarch and includes many royal family members. The Council of Ministers has both legislative and executive powers, subject to the King's approval.
Legislative Power
There is no elected legislature in Saudi Arabia at the national level (although there are municipal elections). A Consultative Council was appointed in August 1993 which has 120 members and a chairman appointed by the King for four-year terms. This Council has limited powers and does not affect decision making or power structures in a concrete way.
 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
170/180

Source: World Press Freedom Index, Reporters Without Borders

 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Not Free
Political Freedom:
7/7
Civil Liberties:
7/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

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COVID-19 Country Response

COVID-19 epidemic evolution
To find out about the latest status of the COVID19 pandemic evolution and the most up-to-date statistics on the COVID-19 disease in Saudi Arabia, please visit the Saudi government’s Covid-19 Daily Updates with the official data. Furthermore, the portal of the Ministry of Health provides data on the geographical distribution of the epidemic in the country.
For the international outlook you can consult the latest situation reports published by the World Health Organisation as well as the global daily statistics on the coronavirus pandemic evolution including data on confirmed cases and deaths by country.
Sanitary measures

To find out about the latest public health situation in Saudi Arabia and the current sanitary measures in vigour, please consult the dedicated pages on the portal of the Saudi Center for Disease Prevention and Control. Furthermore, Ministry of Health provides up-to-date information on the containment measures put in place and public health recommendations.

Travel restrictions
The COVID-19 situation, including the spread of new variants, evolves rapidly and differs from country to country. All travelers need to pay close attention to the conditions at their destination before traveling. Regularly updated information for all countries with regards to Covid-19 related travel restrictions in place including entry regulations, flight bans, test requirements and quarantine is available on TravelDoc Infopage.
It is also highly recommended to consult COVID-19 Travel Regulations Map provided and updated on the daily basis by IATA.
The US government website of Centers of Disease Control and Prevention provides COVID-19 Travel Recommendations by Destination.
The UK Foreign travel advice also provides travelling abroad advice for all countries, including the latest information on coronavirus, safety and security, entry requirements and travel warnings.
Import & export restrictions
For information on all the measures applicable to movement of goods during the period of sanitary emergency due to the COVID-19 outbreak (including eventual restrictions on imports and exports, if applicable), refer to the website of the Saudi Customs.
For a general overview of trade restrictions due to COVID-19 pandemic, please consult the section dedicated to Saudi Arabia on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan

For information on the economic recovery scheme put in place by the Saudi government to address the impact of the COVID-19 pandemic on the Saudi economy, consult the website of the Ministry of Finance. Further details can be sourced on the dedicated page of KPMG's website.
For a general overview of the key economic policy responses to the COVID-19 outbreak (fiscal, monetary and macroeconomic) taken by the Saudi government to limit the socio-economic impact of the COVID-19 pandemic, please consult the section dedicated to Saudi Arabia in the IMF's Policy Tracker platform.

Support plan for businesses
For information on the local business support scheme established by the Saudi government to help small and medium-sized companies to deal with the economic impacts of the COVID-19 epidemic on their activity, the Ministry of Investment has formed a new taskforce: the MISA COVID-19 Response Center (MCRC). The Ministry also provides a “Guide to Business Continuity in Case of Emergency Coronavirus Covid-19”. Further details can be found on the dedicated page on KPMG's website.
For a general overview of international SME support policy responses to the COVID-19 outbreak refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.
Support plan for exporters

For the up-to-date information on possible support plans for exporters in Saudi Arabia, if applicable, please consult the website of the Saudi Export Development Authority.

 

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Latest Update: June 2022