stood at -0.23 percent over the course of SAUDI ARABIA calendar year 2017. Although the defla- Recent developments tionary trend has seemingly reversed, it could still spell a weaker demand envi- The Saudi Arabian economy contracted ronment in light of recent reforms and an moderately at 0.6 percent in 2017, as oil uncertain political environment. The Table 1 2017 production was restrained based on the Kingdom has continued to peg its curren- P o pulatio n, millio n 32.8 OPEC+ deal, and non-oil sector growth cy to US$, which given recent deprecia- GDP , current US$ billio n 685.2 slowed in the wake of reduced public tion could help rebalance pressures on GDP per capita, current US$ 20878 spending. Early data for 2018 suggests non-oil exports and rein in imports. Scho o l enro llment, primary (% gro ss) a 109.5 that non-oil GDP in the first quarter may On the external side, the pace of contrac- Life expectancy at birth, years a 74.6 have deteriorated further, given the Janu- tion in exports, registering at 4.7 percent ary PMI level of 53.0, which fell noticeably as the OPEC+ deal slowed Saudi oil pro- Source: WDI, M acro Poverty Outlook, and official data. Notes: from 57.3 in December 2017, and is the duction, was outpaced by the discernable slowest recorded since August 2009. More slowdown in imports by 8.3 percent. To- (a) M ost recent WDI value (2015) promisingly for the future however, hir- gether, this translated into a swing of the ing picked up to its strongest level since current account into surplus of 1.7 percent August 2016 and business optimism of GDP. reached an eight-month high, according to Regarding labor market issues, the latest the Emirates NBD Saudi Arabia Purchas- available data suggests an improvement. ing Managers’ Index survey. The pace of job creation improved in the The fiscal deficit markedly improved to second half of 2017 as the unemployment The Kingdom of Saudi Arabia is proceed- 9.0 percent of GDP in 2017, compared to rate decreased to 5.8 percent in the third the 16.9 percent a year earlier. This sub- quarter. Latest available survey data from ing swiftly on its ambitious multifaceted stantial progress increased space to miti- Emirates NBD suggests that hiring levels reform agenda. In 2018, authorities are gate household impacts of fiscal reforms. are picking up strongly. However, the continuing their commitment to the Upon the completion of its recent crack- unemployment rate remained broadly OPEC+ deal, which is in place through down on corruption, during which pur- unchanged in 2017 at approximately 5.8 portedly over US$100 billion in assets percent for the overall population and the end of the year, by restricting oil pro- were garnered, authorities announced increased to slightly above 12 percent for duction and implementing major reform new allowances for state employees over Saudi nationals (up from 11.5 percent a initiatives to counter the pervasive prob- 2018 to compensate for the higher costs of year earlier) given the structural labor lems in its oil-dependent economy. With living. Authorities have acknowledged market issues, including high reservation subdued oil production, and a private that they ought to slow down the pace of wages for Saudi nationals. austerity so as not to imperil the burgeon- While no official information is available, sector still adapting to fiscal consolida- ing economic recovery led by the private the Kingdom likely faces a looming pov- tion, growth is likely to be dependent on sector. erty problem. As in other GCC countries, the trajectory of new public spending that Deflation was evident in the economy the bulk of low-income residents are mi- has been recently announced. through October 2017, and the annual grant workers, but as the citizen popula- inflation average registered by SAMA tion crosses the 20 million-mark, inade- FIGURE 1 Saudi Arabia / Crude oil production in the KSA FIGURE 2 Saudi Arabia / Institutional composition of the GDP (constant prices) Crude Oil Production (bbl/d) SAR, Trillions 11.0 3 10.5 3 0.43 0.44 0.43 0.41 0.40 0.38 10.0 2 1.00 2 1.01 1.00 0.97 0.86 0.92 9.5 1 9.0 1 1.04 1.02 1.04 1.10 1.14 1.10 8.5 0 8.0 2012 2013 2014 2015 2016 2017* 2010-01 2010-05 2010-09 2011-01 2011-05 2011-09 2012-01 2012-05 2012-09 2013-01 2013-05 2013-09 2014-01 2014-05 2014-09 2015-01 2015-05 2015-09 2016-01 2016-05 2016-09 2017-01 2017-05 2017-09 2018-01 Oil Sector Private Non-Oil Sector Public Non-Oil Sector Import Duties Source: Joint Organizations Data Initiative (JODI). Source: KSA General Authority for Statistics. MPO 1 Apr 18 quate access to economic opportunities is short-term effects of structural reforms also an issue for nationals. With the pro- spect of low oil prices for longer, the old dissipates and government balances im- prove, it is projected that growth will rise Risks and challenges social contract—one based on government to over 2 percent in 2019. As NTP-related employment, generous subsidies, and free reforms and direct government initiatives Over the medium-term the main challenge public services—is no longer sustainable. aimed at the private sector are implement- to the economy is an ability to translate A reform agenda contained in the Vision ed, while capital spending is simultane- general strategic directions into specific 2030 document envisages deep structural ously ramped up, further domestic policies, at which point opposition tends changes that will profoundly impact the growth opportunities are foreseen to open to materialize. In practice this means that population in all aspects of their liveli- up. Crown Prince Mohammed bin Salman reforms with broad “middle class” nega- hoods. continues to have strong popularity, tive impacts are more prone to reversal, The authorities are serious about mitigat- providing a strong signal to investors and such as subsidy reform and taxation. To ing the negative impact of reforms, as seen the wider public of a longer-term commit- stave off such opposition to the social con- in public pronouncements and actions. ment to continue the path of reforms de- tract, credibility that alternative sources of Yet targeted support is still a new concept spite the negative perceptions generated job creation will emerge is critical. In addi- in the country. Identifying the most poor by specific initiatives. tion, while the government has tended to and vulnerable groups has been difficult, With improved economic conditions, and downplay fears of capital flight, net for- and little evidence exists to inform policies an announcement by authorities of fewer eign assets held by SAMA had fallen about the level of support to be provided fiscal constraints in 2018, the fiscal deficit steeply in recent years until late 2017. to them. In that respect, the authorities are is expected to narrow only slightly in 2018 Buffers are still ample, but depleted rela- currently building capacity and institu- to 7.6 percent, as a share of GDP. The fis- tive to 2014. The clear intention to engage tions for welfare measurement and analy- cal outlook incorporates a continued in more directive investments with for- sis. strong commitment to reform efforts. eign assets raises risks that foreign assets Recovering oil prices are expected to fur- could be less liquid, inhibiting the coun- ther strengthen the current account from try’s ability to cope with oil price volatili- Outlook its estimated surplus of 1.7 percent of GDP in 2017. Inflation is projected to be ty. considerably more volatile in the coming The economy is projected to expand again years, rising to nearly 5 percent in 2018 in 2018 mainly due to a moderate recovery and then dropping to below 2 percent in in oil production levels (vis-à-vis last 2019 as the VAT introduction is absorbed. year’s sharp cuts) and marginally higher public spending. However, as the negative TABLE 2 Saudi Arabia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2015 2016 2017 e 2018 f 2019 f 2020 f Real GDP growth, at constant market prices 4.1 1.7 -0.6 1.8 2.1 2.3 Private Consumption 6.8 2.3 1.8 2.6 2.5 2.9 Government Consumption -1.8 -18.8 2.0 1.1 1.4 1.4 Gross Fixed Capital Investment 3.6 -15.9 1.7 2.0 3.8 4.1 Exports, Goods and Services 0.7 1.4 -0.5 1.9 1.7 1.8 Imports, Goods and Services 1.5 -24.3 2.2 2.6 2.8 3.0 Real GDP growth, at constant factor prices 3.5 1.8 -0.6 1.8 2.1 2.3 Agriculture 0.6 0.6 0.0 0.2 0.6 0.6 Industry 5.0 2.5 -0.3 1.4 2.0 2.0 Services 1.4 0.9 -1.1 2.5 2.4 2.9 Inflation (Consumer Price Index) 2.2 3.5 -0.1 4.9 1.9 2.3 Current Account Balance (% of GDP) -8.7 -4.3 1.7 2.1 2.3 2.4 Fiscal Balance (% of GDP) -15.8 -16.9 -9.0 -7.6 -4.9 -2.4 So urce: Wo rld B ank, P o verty & Equity and M acro eco no mics, Trade & Investment Glo bal P ractices. No tes: e = estimate, f = fo recast. MPO 2 Apr 18 MPO 3 Apr 18