eco TV Week

Saudi Arabia: Positive short-term prospects

7/30/2021

The year 2020 was difficult for the Saudi economy, but the outlook is positive in the short term. A twin shock hurt the economy: the Covid19 pandemic and more importantly the fall in oil prices.

We had a direct impact on fiscal revenues and on economic activity. In addition the government had to accelerate the consolidation of public finances with a negative impact on household demand. The VAT rate has tripled and some allowances have been cut.

The fiscal deficit reached a very high level at more than 11% of GDP and the economic recession has been the deepest for more than 20 years (-4.1%).

The recovery should be moderate this year (2.3%) given the rebound in oil prices and higher production in line with the OPEC+ agreement. The fiscal deficit should reach around 3% of GDP.

In the medium term, this difficult year may have had a positive consequence with the acceleration in fiscal consolidation. It is favourable to the diversification of government revenues. On the contrary, the uncertain oil outlook will continue to constrain the pace of economic reforms.

Key words: oil prices, fiscal consolidation, economic reforms

Summary: In 2020, the Saudi economy recorded a deep economic recession and a very high fiscal deficit. The economy should recover in 2021 with the rebound in oil revenues. The acceleration in fiscal consolidation will have positive consequences in the medium term, but an uncertain oil market outlook will continue to constrain economic reforms.

Pascal DEVAUX

TRANSCRIPT // Saudi Arabia: Positive short-term prospects : July 2021

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