Saudi-Arabia Country Risk Report & Analysis

The Saudi economy looks set to start growing again in 2024, after a year of little to no growth in 2023, but much of its fortune will depend on the government’s stance on oil production. The economic decline was self-inflicted when the monarchy unilaterally reduced oil output by one million barrels per day (b/d) in July 2023 and maintained this attitude until the end of the year to help support oil prices. A rise in oil production and exports in the second half of 2024, along with rapid growth in the non-oil economy, will boost real GDP growth by about +2%, in line with the post-2014 average. A substantial fiscal deficit is likely to remain supportive of non-oil activities, with negative spillovers on energy and construction projects from the resurgence of conflicts across the region.

The kingdom, which has been rich with cash from robust oil sector earnings in recent years, will continue to fund a series of mega-projects aimed at creating a more diverse economy in accordance with Vision 2030. On the other hand, trade disruptions and regional instability may weigh on businesses and foreign appetite for the region, potentially posing obstacles to Saudi Arabia’s plan to attract many more tourists, companie and talent. Even if the country remains heavily reliant on agri-food imports, including grain, it has always been able to find alternatives, given ample purchasing power.

Inflation in Saudi Arabia is likely to remain around 2% thanks to large export revenues, ample reserves that allow the local currency to maintain the currency peg with the US dollar and a strict monetary tightening cycle initiated in March 2022, in parallel with that of the US Federal Reserve.

The resurgence of conflicts in the Middle East, particularly around Israel, poses a threat to the international appetite for the region. In early 2023, Saudi Arabia made a few steps towards normalizing relationships with peers and playing a broader role in the region, which contributed to easing trade and investment conditions. In March, the kingdom reached a historic accord with Iran, negotiated by China. Relations between Saudi Arabia and Turkey had also come to a truce after years of hostility, but recent altercations related to sporting events hosted by Riyadh may further complicate the picture. In March 2023, Saudi Arabia agreed with Ankara to deposit a USD5bn swap line in the Turkish central bank to mitigate the lira exchange rate volatility, confirming the kingdom’s role as one of the main lenders of last resort for countries in the region.

Succession dynamics and broader governance concerns put a drag on policy predictability. While comments made by a Saudi investor in March 2023 sparked the crisis in the Swiss banking sector, the suspension of diplomatic relations with Qatar in 2017 sparked a few commercial disputes and international arbitration cases. Until governance mechanisms improve and institutional capabilities strengthen, similar events may unfold again.

Competition with the United Arab Emirates for business and investment opportunities is likely to exacerbate policy divergences and enhance the possibility of confrontation between the UAE and Saudi leadership, although the competitive dynamic increases the chance of domestic reforms aimed at improving regulatory and operational conditions in an effort to make each country more appealing to global investors. In March 2023, three foreign law firms were granted the first licenses to practice in Saudi Arabia to encourage business expansion.