Insights

Saudi Economy Adjusting to Structural Change

We have revised our forecast for the Saudi economy and we now expect to see growth of 2.2 percent in 2018 (compared to -0.9 percent in 2017). The sizable rebound in growth will be partly driven by an improvement in the oil sector. As Saudi Arabia raises oil output, this will positively affect oil sector GDP, lifting it to 3.2 percent in 2018, compared to a decline of 3.0 percent in 2017.

The Saudi Economy in 2018

We expect an improvement in the Saudi economy in the year ahead, supported by both the oil and non-oil sector. Oil sector GDP is expected to improve, in part, due to rises in oil production as OPEC and non-OPEC countries gradually exit from cuts at some point during the year. Growth in the non-oil sector is forecasted to improve as an expansionary budget, with a specific set of stimulus packages, lifts activity.

Saudi Economy 2018

Fiscal Balance Program 2020: The Path to Fiscal Sustainability

Along with the 2017 budget statement, the government announced details of the Fiscal Balance Program (FBP 2020), one of the programs highlighted in Vision 2030. The FBP contains all reforms relevant to reaching a balanced budget by 2020 and includes initiatives designated for enhancing spending efficiency, reforming energy prices, and promoting non-oil revenue. The FBP also touches on critical socioeconomic aspects, such as the creation of a “Household Allowance Program”, and the announcement of more detailed plans to support private sector economic activity.

The Saudi Economy in 2017

We expect the Saudi economy to continue slowing in 2017, dragged down by negative growth in the oil sector. Non-oil sector growth should rebound but remain subdued. As oil prices rebound, the current account deficit will shrink considerably, while the fiscal deficit will fall to single digits. We believe the government will continue to comply with targets specified in the Fiscal Balance Program (FBP 2020), allowing for a smooth adjustment in the fiscal budget while cushioning the impact on growth in the non-oil private sector.