The kingdom of Saudi Arabia, located south west corner of Asia and at the crossroads of Europe, Asia and Africa, has approximately one fifth of the world’s proven oil reserves and is the largest oil producer and exporter of total petroleum liquids in the world (EIA, 2011). It is also world’s second largest crude oil producer behind Russia (Appendix 1a) (Williams and Martins, 2012).
Despite disturbance in the neighboring region Saudi Arabia has been able to maintain the growth in 2012 for two reasons: first, government executing expansionary budget to support public spending has been accelerated at rapid pace, and second, increasing public spending programs initiated in 2011 to counter the devastating impact of Arab up-spring (EIA, 2011).
Combating the higher unemployment especially in young lot, Saudi Government is taking the extensive measures with shift in from current expenditure to capital expenditure based on its sound balance sheet. KSA has reserves equal to 100 percent of its GDP with 550 Bn. in the last six years. Due to souring oil prices these countries have paid their debt with heavy earning and debts of the Saudi government have been maintained fewer than 10% of GDP. This reflects the high capacity of Government spending even with moderating revenue due to corrections in oil prices. The strong balance sheet also has the strength to lend to its currency in case of pressure from oil prices as FX reserves covers three years of import (Williams and Martins, 2012; Hasan and Ahmed, 2012).
ECONOMIC INDICATORS
Economic indicators since year 2006 to 2011 have been used for the projections and estimations of the following years (Appendix 2a) (Hasan and Ahmed, 2012). Selected figures for the year 2012 and forecast for the 2013 has been presented in the appendix 3a (Williams and Martins, 2012). In second quarter of 2012 and 2013 KSA expected to have growth of 4.0 and 3.9 respectively, this has been revised to 4.1 and 3.7 for the same period respectively (Appendix 3b) (Williams and Martins, 2012).
GROSS DOMESTIC PRODUCT (GDP):
GDP for the year 2013 has been forecasted to remain at the level of 3.7 % (Real, y-o-y) after reaching its peak of 6.6% in 2011 and moderated in 2012 at 4.1% (Appendix 4a) (Williams and Martins, 2012). GDP per capita for 2013 is forecasted to be US $20,225 with decline of 1.8% from previous year with population increasing from 28.9 million in 2012 to projected 29.6 million in 2013(Appendix 4b and 4c) (Williams and Martins, 2012).
Being the rich oil state and among biggest exporters KSA is regarded with gripping economic story. After revival from world recession and dip in 2009 at level below 1%, GDP growth has accelerated since then (Appendix 4d) (Hasan and Ahmed, 2012). Most recently, for Q1 2012 the GDP growth remained strong and is expected to maintain the momentum for second quarter (Appendix 4e) (Williams and Martins, 2012).This growth is pushed by following: ambitious spending plan from government for economic and social development; diverted spending from current to capital expenditure, and effective monetary policy with increased lending to private sector.
GDP receives main contribution from oil. Y-o-Y income from oil increased by 40% in 2011 as compare to 2010 (USD108/barrel in 2011 from USD77/barrel in 2010) with expectations to maintain the same levels with increased production in the range of 9.5 -9.6 mn b/d to fill shortage risen from US sanctions on Iran; hence, Saudi Arabia can enjoy good economic condition in near future (Hasan and Ahmed, 2012).
Growth contribution from non-oil sector also witnessed increase by 14.2% YoY in 2011 as compared to 9.1% YoY in 2010 and 5 year average of 7.7%YoY (Hasan and Ahmed, 2012, p. 4). This growth is however remarkably less than growth from oil-sector. Therefore, measures required by the government to take growth of non-oil sector back on track have been well gauged and addressed by the government with spending. Real impact of this diversified investment strategy from government will be more evident by the stabilization of high prices that are making extraordinary contribution in revenues. Contribution to GDP from oil and non-oil sector has been given in appendix 4f (Hasan and Ahmed, 2012). Exploring contribution to GDP from non oil sector for previous year has also been given in appendix 4g and 4h (Hasan and Ahmed, 2012).
INFLATION:
Inflation for the year 2013 has been projected to 5.5% with increase from 4.4% in year 2012 (Appendix 5a) (Williams and Martins, 2012). Inflation trend in KSA remained in between 1% to 2% in first half decade century and later infuriated in 2007 and 2008. It was due to heightening oil prices that accelerated economic performance strongly. During this time overall inflation from world also increased and later accepted correction (Appendix 5b) (Williams and Martins, 2012). Analysis of the constituent for the last three years, housing and related items appear to boost the number. Food component was also among giving upward pressure to inflation. This pressure is directly related to international commodity prices. Government’s efforts of building food reserve by cultivating land abroad are expected to ease the pressure to some extent (Appendix 5c) (Hasan and Ahmed, 2012).
INTEREST RATE AND EXCHANGE RATE
Interest rate in KSA for year 2013 is projected to remains at level of 0.25% p.a., which is consistent since 2009 (Appendix 6a) (Williams and Martins, 2012). It has been to counter the effects of financial crises followed by regional unrest. Government diverted from current to capital expenditure to support the economy with expansionary fiscal stance. Furthermore, strengthened balance sheet of KSA government with high reserves has capacity to fund more than 2 year of public spending (Appendix 6b) (Williams and Martins, 2012). Finally, banks with high liquidity conditions have also stepped in to increase private lending (Appendix 6c and 6d) (Williams and Martins, 2012). Hence, supporting economy with increased government spending and reducing policy rate to encourage private investment supports expectation for year 2013 to witness the growth momentum of in total investment (Appendix 6e) (Williams and Martins, 2012).
Exchange rate for Saudi Riyal has been at consistent level of 3.75 since 2004 and is expected to continue the same level in 2013 (Appendix 6f) (Williams and Martins, 2012). The currency has been receiving support earlier from the souring oil prices and later on the mounting reserves of the government. The central bank reserves for the year 2013 are expected to rise to US $642 Bn. as from projected US $612 Bn. for the current year (Appendix 6g) (Williams and Martins, 2012). This level of exchange rate is expected to continue unless oil price decline below US $85/ barrel. Decline in oil prices below mentioned level would require moderation in public spending and hence can impact the exchange rate.
GROWTH IN INTERNATIONAL TRADE
Trade figures according to the data issued by Saudi Arabia Monetary Agency (SAMA) have been US $343.2 bn. in 2011. This is 37 percent higher than the exports of 2010 (KSA Ministry of Finance, 2011) (Appendix 8a). For the segregation of oil and non oil export, latter contribute an amount approximately US $40.8 Bn (KSA Ministry of Finance, 2011). while remaining being oil related exports. Item wise mineral and mineral products contribute the biggest portion i.e. 87% for the year 2011 (Appendix 8b) (KSA Ministry of Economy and Planning, 2011). Top ten countries to which KSA export are USA, Japan, China, S. Korea, India, Singapore, Taiwan, Italy Emirates and Bahrain (Appendix 8c) (KSA Ministry of Economy and Planning, 2011). It contributes approximately 70 to 75 percent of the total exports (KSA Ministry of Economy and Planning, 2011).
Value of total imports of goods to KSA, according to SAMA, is estimated at US $98.7 billion in 2011.Imports has shown minimal growth of 2% as compared to previous year. SAMA also declared trade balance to record a surplus of US $244 billion in 2011; an approx. increase of 59 percent in comparison with 2010. It is so, with support from increase in exports (both oil and non-oil) and low growth in imports (KSA Ministry of Finance, 2011).
The trade balance trend shows surge after decline in 2009 mainly with the rising oil prices in 2010 and 2011. Year 2012 marked surge based on the rise in oil prices due to Arab Up spring (Appendix 8d) (Williams and Martins, 2012). With the gaining moderation in world politics, increasing KSA oil production amid sanctions in Iran, and settling oil prices it is being expected that trade balance will end up at 32.3% of GDP in 2013 as compare to 40 percent of GDP in 2012.
STRENGTHS AND WEAKNESSES
Kingdom of Saudi Arabia has large portfolio of strengths as compare to weakness. Strength has been generated from successful strategic management of its oils resource mainly. KSA on surging oil prices added its international reserves to the point where it is now able to fund its public spending for more than years (Appendix 6b) (Williams and Martins, 2012). This strength is supporting country in times where the economic downturn as well as hit from the Arab Up-spring has left many countries of the region in vulnerable condition.
KSA has also taken measures to counter the other factors that could pose hit to its economy such as commodity prices. Being commodity importing country, its economy is affected by movement in these prices. Government has already started building food reserves abroad by cultivating land in order to meet the growing demand.
Currently, acute level of unemployment due to Arab situation has been biggest challenge for the country. Though for the purpose, government has introduced ‘Nitaqat” program in 2011 to support employment of Saudi nationals. However, the capital investment is generating employment opportunities in sectors where employers have to face harsh environment conditions. Saudi nationals are reluctant to such jobs. Hence, to meet the requirement government is required to devise plan where such jobs remain landed with imported labor force. To accommodate the national labor, it shall either generate opportunities in sectors such as financial or enter into trade agreement with countries offering such jobs. Like America diverted manufacturing sector mainly to China and India and turned its economy as real economy.
CONCLUSION
In international conditions where the world is in situation of constant striving for economic stability KSA has success story. It developed assets for the bad weather such as economic downturn and unforeseen risings such as Arab political disturbance. Utilization of those assets to meet the employment demand and maintaining GDP growth momentum has been successful strategy of KSA. Its most economic indicators are in green zone referring least avenue to worry for the nation. However, the political transition and settlement in Egypt, Libya and Tunisia with currently worsening condition of Syria can yet pose challenges to impact the entire region. At the same time efforts of recovery in international economics with oil prices showing volatility can pose unpredictable challenge to any economy including Saudi Arabia.
References
EIA. (2011). Saudi Arabia: Country Analysis. Retrieved October 10, 2012, from <http://www.eia.gov/countries/cab.cfm?fips=SA>
Hasan, F., and Ahmed, N. (2012). KSA Economic Review. Kuwait: Global Investment House
KSA Ministry of Economy and Planning. (2011). Export Statistics. Retrieved October 10, 2012, from <http://www.google.com.pk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CB0QFjAA&url=http%3A%2F%2Fwww.cdsi.gov.sa%2Fsocandpub%2Fedu%2Fdoc_download%2F1441------2011&ei=S6R6UMf6Mc3Eswal7IGoAg&usg=AFQjCNFusjHyUJGLfWh05CHONFeTtNvFFg>
KSA Ministry of Finance. Recent Economic Developments and Highlights of Fiscal Years 2011 and 2012. Retrieved October 10, 2012, from <http://www.mof.gov.sa/English/DownloadsCenter/Budget/Statement%20by%20the%20Ministry%20of%20Finance%202012%20Final.pdf>
Williams, S., and Martins, E. (2012). Middle East Economics: Means and Motive. HSBC Global Research. Retrieved October 10, 2012, from <https://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=rl3VHxzITq&n=334255.PDF>
