Euler Hermes, said in its latest analysis on the Kingdom of Saudi Arabia that the government-initiated actions to address the economy’s heavy dependence on the hydrocarbon sector will take time as long-term projects will face challenges such as the transfer of public sector jobs to the private sector.
According to the analysis, Saudi Arabia’s weakness is its dependence on international oil prices along with a narrow economy focused on the hydrocarbon sector. The country’s strength is its solid banking system, with a large financial asset base and strong foreign exchange reserves. The fiscal deficit is likely to remain large, forecast at -9 per cent of GDP in 2017, and public debt should further rise to 19 per cent of GDP.
“The Vision 2030 roadmap and the National Transformation Plan 2020 are supposed to herald a turning point for the country. This diversification process relies on initiatives to develop weak sectors such as defence industries, retail, renewable energy and the private sector,” said Jules Kappeler, CEO, Euler Hermes Middle East.
Kappeler added that Saudi Arabia’s real gross domestic product (GDP) growth dropped to 1.4 per cent in 2016, from 4.1 per cent in 2015 triggered by markedly lower oil prices. Looking ahead, an improved environment is expected to result in stabilisation of GDP growth around +1.5 per cent in 2017. In addition the current account deficit is forecast to narrow to -3.6 per cent of GDP in 2017 from -7 per cent in 2016.