A strong set of fundamentals coupled to abundant resources, the Saudi economy is undergoing an upbeat phase. So states new findings from the International Monetary Fund in its recently-concluded Article IV consultations.
The IMF projects a real GDP growth, adjusted for inflation, of 4.6 per cent in 2014 and up from last year’s 4 per cent. This is partly attributed to the relatively steady oil production levels, the spending on housing and other large-scale infrastructure projects plus a notable performance on the part of the private sector.
The private sector benefits from the kingdom’s economic might as reflected in the GDP of $750 billion (Dh2.7 trillion). Other gains are derived from economic activities related to the annual Haj and the spending made by pilgrims through the year.
Another plus is that inflation is expected to remain subdued thanks to absence of price gains for imported foodstuffs. As is the case within the rest of the Gulf Co-operation Council (GCC) economies, inflation in Saudi Arabia remains under control at around 3 per cent.
Turning to its fundamentals, Saudi Arabia leads the world in the production of crude oil, producing some 11.5 million barrels per day. The world’s top three producers — Saudi Arabia, Russia and the US — account for 13.1 per cent, 12 per cent and 10.8 per cent of total crude output.
Additionally, the kingdom controls 4.4 per cent of proven natural gas reserves, the third largest in the Mena region after Iran and Qatar. (The source of this data is the ‘BP Statistical Review of World Energy’ (June 2014)).
The budgetary and current account surpluses are outstanding. In fiscal year 2012, the budget posted a surplus of $103 billion, a record by local standards. The amount represented a substantial 12 per cent of GDP.
However, fiscal surpluses are on the decline, constituting 5.8 per cent of GDP in 2013 and declining further to 2.5 per cent in 2014, as per IMF estimates.
The Gulf Monetary Union (GMU) project, of which Saudi Arabia is a member, allows for a budgetary shortfall of 3 per cent of GDP.
Infrastructure projects
Other strong fundamentals include current account surpluses, compromising 22.4 per cent and 17.9 per cent of the GDP in 2012 and 2013, respectively.
Yet, the declining surplus is no cause for concern and as such represents the determination of Saudi authorities to appropriate sizable funds for infrastructure projects and housing for the less well-off nationals.
Commendably, Saudi authorities have fruitfully used the extra revenues of the past few years to reduce outstanding public sector debt to around 10 per cent of GDP. (The GMU allows for public debt accounting for 60 per cent of GDP.)
Undoubtedly, the Saudi treasury has succeeded in earning a substantial amount on the back of steady oil prices coupled with stronger output. The kingdom played a key role in stabilising the international oil market after the drop in output from Libya and Syria as well as embargo on Iranian oil. (Total oil revenues for 2012 stood at $330 billion, up by $143 billion.)
Saudi Arabia has a low debt-to-GDP ratio and strong fiscal and current account surpluses.
Looking forward, the government move to grant foreign investors access to the local stock market from 2015 should further enhance prospects for the Saudi economy.
