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Economic Overview

Saudi Arabia is an oil-based economy with the largest proven crude oil reserves in the world at 266.7 billion barrels, representing 57% of the GCC reserves, 29% of the OPEC and almost 20% of the world total reserves. It ranks as the largest producer as well as exporter of petroleum in the world and plays a leading role in the OPEC, producing 28% of the total OPEC oil production. An average oil production stood at 8.055 million barrels per day in 2009 compared to 9.113 million barrels per day in 2008. Oil sector represented 90% of total export earnings, 80% of government’s revenue and 45% of its GDP. About 40% of GDP comes from the private sector. The average OPEC basket oil price stood at US$77.20 per barrel in the 1st four months of 2010 compared to $44.79 a barrel in the same period of 2009, recording an annual increase of 72.4% attributed to global economic recovery, revival of world energy demand and increased business confidence. The average OPEC basket oil price stood at US$82.33 per barrel in April 2010 compared to US$50.20 a barrel in April 2009 and $105.16 in April 2008. A peak level of oil price touched $147.27 a barrel in the international market on 11th July 2008 due to geo-political uncertainties in the Middle East and increased global energy demand. But oil prices plunged sharply thereafter due to global financial and economic crisis. As part of its efforts to attract foreign investment and diversify the economy, Saudi Arabia has launched mega projects, including establishment of six economic cities in different regions of the Kingdom to achieve balanced development of the regions. Saudi Arabia has recorded strong economic growth during 2003 until late 2008 on the back of increased oil production and high oil prices. The non-oil sector, especially construction and real-estate industries, has also played an important role in the economy. Both the private and the public sectors have contributed, as FDI and increased government spending supported the development of an effective and sustainable non-oil economy. After six years of exceptional growth in oil revenues driven by external factors, world energy demand declined due to the global financial and economic crisis, resulting in a sharp decline in oil prices. All countries of the world were affected adversely by the crisis including Saudi Arabia in 2009, however, the Kingdom was the least affected country in the GCC region due to the government’s wise and timely policies. The global economy is recovering faster than expected having a positive impact on the Saudi economy. .

Macroeconomic Overview


The year 2004 was the best year in the history of Saudi economy in terms of economic performance since 1982. After achieving a robust growth in 2003 and 2004, Saudi Arabia is expected to achieve another prosperous year (2005), attributed to: strength of the oil sector; better domestic geo-political environment; acceleration of reform measures; growth of foreign assets of SAMA; a strong private sector growth; a high growth of corporate earnings during Q1-2005 and expected strong corporate earnings in Q2-2005. Saudi Arabia remains vulnerable to oil price movements, contributing to a volatile pattern of economic activity. An extraordinary strong upturn in oil prices and production in 2004, which is still continuing, has resulted in a robust growth for the Saudi economy as the nominal GDP grew by 16.8% in 2004 to US$ 250.56 billion compared to US$ 214.57 billion in 2003. The nominal GDP is expected to grow further by 13.7% to US$ 284.8 billion in 2005, attributed to an all time high levels of oil prices and oil production. The real GDP grew by 7.66% and 5.23% in 2003 and 2004 respectively, and is expected to grow by 4.5% in 2005.


Saudi Arabia has been commended for its "extraordinary low inflation" in a survey of 12 Arab countries by the World Economic Forum (WEF) recently. The Kingdom has a proven track record of very low inflation rates over a long period of time. The consumer price index grew marginally by 0.3% in 2004 compared to an increase of 0.6% in 2003 and is expected to rise marginally to 0.6% in 2005. A slight increase in inflationary pressure, which is still marginal, is mainly attributable to expected increase in the cost of imported non-oil commodities, priced in Euro and/or Japanese Yen, etc. (due to depreciation of the US$ against these currencies), plus rising domestic demand pressures. In general, the relative price stability achieved has largely been due to the prudent management of the fiscal and monetary policies and the adequate availability of goods & services in the country.

Fiscal Position

The Kingdom posted a budget surplus of 10.43% of GDP in 2004 compared to 5.7% of GDP in 2003 emanating from windfall oil revenues due to sustained high oil prices and increased oil production. The surplus is expected to be 6.3% of GDP in 2005. Supported by sustained oil market strength, economic prospects over the next two years (2006 and 2007) are promising, as there is likely to be a strong boost in domestic & foreign investment activities in oil & gas, petrochemicals, telecom, insurance sectors, etc. that will stimulate the private sector. The government has accelerated its efforts in developing and implementing appropriate strategies and policies for economic diversification. The high oil revenues earned by the government have resulted in strong capital spending. There has been considerable investment proposed in Kingdom's Mega Projects, especially gas, oil and infrastructure sectors over the forthcoming years.


The monetary policy of Saudi Arabia will remain focused on maintaining a fixed exchange rate regime with the US Dollar (US$). The Saudi Arabian Monetary Agency (SAMA) will maintain the Saudi Riyal's peg to the US Dollar at SR 3.75: US$ 1, as it has ample reserves to do so. SAMA's policy of limited foreign borrowing has kept liabilities low and thus contributed significantly to the long-term stability of the Saudi Riyal against the US Dollar. A robust oil market will enable further growth of Kingdom's foreign currency reserves, and ensure that there is no pressure on the currency peg. Total reserves minus gold stood at US$ 27.2 billion at the end of 2004 compared to US$ 22 billion at the end of 2003. These reserves are expected to rise further to US$ 27.5 billion by the end of 2005.

External Accounts

The Kingdom has realized very high levels of trade surpluses on the back of bullish oil market trends. The trade surplus stood at a record level of US$ 84.1 billion in 2004 compared to a surplus of US$ 59.5 billion achieved in 2003. This is expected to expand further by 23.7% to US$ 104 billion in 2005 on the back of bullish oil prices and higher levels of oil production emanating from robust growth of oil demand, especially from China and the USA. The current account of Saudi Arabia recorded a surplus of US$ 49.3 billion in 2004 compared to a surplus of US$ 29.7 billion in 2003 mainly attributed to higher export earnings. The Kingdom is expected to realize even higher current account surplus of US$ 79 billion in 2005.