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Saudi Arabia

Saudi Arabia is the world’s largest oil producer and exporter with almost one-fifth of the word’s proven oil reserves. Benefiting from abundant and cheap energy, the industrial sector has gained a leading position, notably in the petrochemical sector. Economic activity remains linked to oil revenues and has slowed markedly since the drop in oil prices at end-2014. The surge in US shale oil production has challenged the leading role of Saudi Arabia in the oil market, at least in the medium term.

Macroeconomic balances, which used to be healthy, have turned to deficit with the decline in oil prices, and fiscal deficit should continue in the medium term. Public debt is moderate, but is increasing. It is largely compensated by public external assets (roughly equivalent to GDP). The SAR peg to the USD is strong.

The country faces two important challenges in the medium and long-term: to create enough private sector jobs for a large and growing population, and to reduce domestic energy consumption in order to preserve the oil export capacity. A national transformation plan (Vision 2030) is expected to accelerate the pace of reform and create new economic opportunities outside the hydrocarbon sector, notably with the development of new cities and of the service sector. The current difficult economic environment could delay those costly projects. The sharp deterioration in the fiscal situation in 2020 (sharp drop in oil revenues given lower price and cut in production) has entailed the implementation of austerity measures that will severely affect household demand, a key driver of non-oil GDP growth. Given the economic rigidity in Saudi Arabia, especially in the employment market, and limited economic competitiveness outside its energy-intensive industries, economic diversification is expected to progress very slowly.

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