major projects at the center of Vision 2030.

SAUDI ARABIA
The freeze of religious tourism and fiscal
Recent developments adjustments (most notably the tripling of
VAT rate to 15 percent effective July) will
Saudi Arabia continues to evolve its re- further suppress private consumption and
sponse to the twin shocks of COVID-19 investment and prolong non-oil sector
Table 1 2019 and lower oil prices. Daily confirmed weakness. With the VAT increase, head-
P o pulatio n, millio n 34.1 COVID-19 cases have trended down- line inflation spiked to 6.1 percent in July,
GDP , current US$ billio n 749.1 wards, and oil prices recouped some of from a one-year low of 0.5 percent in June.
GDP per capita, current US$ 21 941 .7 their lost ground in the Spring owing to The budget deficit widened in the first
a OPEC+ agreement and a pick-up in eco- half of 2020 to SAR 143.3 billion (11.7 per-
Scho o l enro llment, primary (% gro ss) 99.8
a nomic activity as countries ease contain- cent of GDP) compared to SAR 5.6 billion
Life expectancy at birth, years 75.0
ment measures. Furthermore, the govern- (0.4 percent of GDP) during the same peri-
Source: WDI, M acro Poverty Outlook, and official data.
Notes: ment has extended various fiscal mitiga- od last year. Lowering spending by 8.3
(a) M ost recent WDI value (2018). tion measures, estimated at SAR 180 bil- percent through cutting the wage bill and
lion (7.3 percent of GDP), to mitigate the slashing capital spending fell short of
impact of the pandemic on the local pri- matching the collapse in revenues, which
vate sector. These include the payment of dropped by 35.6 percent. The scale of the
up to 60 percent of wages of local private decline in oil revenues means that even
sector employees and the deferral or waiv- with painful fiscal measures like the sus-
COVID-19 and lower oil production lev- er of certain taxes and fees, with unspeci- pension of cost of living allowance and
fied expiration dates for many measures. increasing VAT, financing needs are very
els and prices are weighing heavily on the
After contracting by 1 percent in the first large. Thus far, depletion of reserves and
economy and fiscal position, despite siza- quarter 2020, Saudi GDP declined by 7 ample market access have proven suffi-
ble fiscal and monetary mitigation percent during the second quarter. Output cient, providing space to smooth some of
measures. The 2020 outlook remains very contracted during the first quarter 2020 by the fiscal adjustment to when economic
1 percent, with oil sector falling by 4.6 conditions are stronger.
weak with medium-term recovery depend-
percent reflecting production cuts in re- Poverty information and access to survey
ent on global economic rebound and even- sponse to weak market conditions predat- data to measure welfare conditions have
tual containment of the pandemic. Medi- ing the pandemic outbreak. The oil sector been limited. However, in recent years
um-term fiscal deficits are estimated to continued its drag on the economy as there have been gains in administrative
continue, leading to a rapidly rising pub- fresh production cuts (subsequent OPEC+ capacity to identify and support low in-
agreements) led oil output to fall by 5.3 come households. Like other GCC coun-
lic debt trajectory. The prospects for suc- percent during the second quarter. Output tries, the bulk of low-income residents
cessful diversification are complementary across the non-oil sectors contracted by 8.2 are migrant workers, but there is as yet
to a stable fiscal framework that is well- percent during the second quarter 2020 no systematic data on their repatriation
signaled to the private sector. reflecting the impacts of containment as a result of the pandemic. Unemploy-
measures. Net foreign investment flows ment among Saudis is largely made up of
fell drastically over this period, but the the young and educated. The participa-
government is continuing to implement tion rate of women is 26 percent, and the

FIGURE 1 Saudi Arabia / Saudis unemployment rate FIGURE 2 Saudi Arabia / Central government operations
by gender

Percent Percent of GDP Percent of GDP

35 50 40

40 35
30
30
25 30
25
20 20
20
10
15 15
0
10 10
-10 5
5
-20 0
0 2015 2016 2017 2018 2019 2020e
2015 2016 2017 2018 2019 2020Q1
Budget Balance Revenues
Total Male Females Expenditures Debt (rhs)
Sources: Haver Analytics. Sources: Haver Analytics, Macroeconomics Trade & Investment.

MPO 174 Oct 20

unemployment rate among Saudi females sector based on outdoor natural settings likely see re-imposed containment
is almost five times that of males (28.2 could partially compensate for religious measures; further hurting businesses,
percent and 5.6 percent, respectively). tourism losses. There is little risk of the employment, and vulnerable groups.
VAT increase being embedded in infla- Oil prices have partially rebounded from
tion expectations and the inflation spike their April lows largely owing to the re-
Outlook will be brief.
The budget deficit is anticipated to widen
vival in global demand and constrained
supply through OPEC+ agreement. Com-
in 2020 to 10 percent of GDP before it nar- pliance to quotas by member states is criti-
The severity of the 2020 contraction will rows in the medium term, but not quickly cal in keeping a floor under prices and the
depend on COVID-19 progression and oil enough to achieve a balanced budget by agreement intact, and the Kingdom has
price volatility during the remainder of 2023, per the pre-Covid fiscal balance pro- signaled its frustration both with non-
the year. GDP growth is expected to con- grams. The public debt target of 30 per- compliance and financial market expecta-
tract by 5.4 percent as oil production lev- cent of GDP from the original fiscal bal- tions of another plunge in oil prices.
els are kept around OPEC+ commitment. ance program has been wisely dropped. Imposing further fiscal restraint, whether
Growth in non-oil sectors will inevitably Signs of urgency by authorities to push for the bloated wage bill or new capital
be depressed due to the significant capital forward with the privatization program projects, will need to be assessed against
spending cutbacks, continuation of social will instill confidence about the private the need for fiscal mitigation to reduce
restriction measures, and households’ sector role in Vision 2030 and ease financ- COVID-19 impacts. The initial public offer-
adjustment to the VAT increase. ing needs from other sources. ing of Saudi Aramco highlighted the
Over the medium term, and pending glob- tradeoff between predictability of oil reve-
al recovery and tapering of the pandemic, nues – its dividends – and investment needs
growth is expected to reach 2.2 percent by
2022; supported by expansion of hydro-
Risks and challenges in the hydrocarbon sector. Payoffs from
diversification both in terms of productivity
carbon output and resumption of capital and the non-oil revenue base are therefore
projects slowed down as part of the repri- Authorities are gradually lifting stringent increasingly urgent. Significant efforts
oritization of spending. While the hit to public health measures, enabling a were already underway to reform the la-
sectors and the current account is broad- pickup in activity. Many countries have bor market, leaving nationals better incen-
based, continuation of domestic tourism seen such steps lead to higher cases from tivized to fill the gap left by expatriate
recovery and an emerging niche tourist COVID-19. A spike in new cases would exodus than other GCC countries.

TABLE 2 Saudi Arabia / Macro poverty outlook indicators (annual percent change unless indicated otherwise)

2017 2018 2019 2020 e 2021 f 2022 f

Real GDP growth, at constant market prices -0.7 2.4 0.3 -5.4 2.0 2.2
Private Consumption 3.2 1.9 4.4 -2.5 1.5 1.6
Government Consumption 3.3 6.0 0.6 -5.2 1.0 1.5
Gross Fixed Capital Investment 0.7 -2.9 4.9 -2.3 1.4 1.9
Exports, Goods and Services -3.1 6.8 -4.5 -9.7 2.6 2.8
Imports, Goods and Services 0.3 2.7 1.3 -3.9 1.0 1.3
Real GDP growth, at constant factor prices -0.7 2.6 0.3 -5.4 2.0 2.2
Agriculture 0.5 0.3 1.3 0.0 0.1 0.2
Industry -2.4 2.7 -2.6 -6.1 1.4 1.6
Services 1.9 2.5 4.3 -4.6 3.0 3.1
Inflation (Consumer Price Index) -0.9 2.5 -1.2 2.0 2.2 2.5
Current Account Balance (% of GDP) 1.5 9.0 6.6 -4.8 -4.5 -1.7
Net Foreign Direct Investment (% of GDP) 0.9 0.7 0.8 -3.0 -1.0 1.0
Fiscal Balance (% of GDP) -9.2 -5.9 -4.2 -10.0 -7.9 -5.7
Primary Balance (% of GDP) -8.9 -5.4 -3.4 -9.2 -7.0 -4.7
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.
NA

MPO 175 Oct 20