above 11 mb/d in November) as part of a SAUDI ARABIA fresh round of OPEC+ curbs. Deficits are Recent developments expected to be financed by debt—with a US$7.5 billion international bond issuance Growth recovered in 2018, driven largely in January 2019 (10 years and 31 years by higher oil production and prices, and maturity)—instead of drawdowns from Table 1 2018 rising public and consumer spending. government reserves at the central bank P o pulatio n, millio n 33.6 The economy expanded by 2.2 percent in as was the case in the past. Although GDP , current US$ billio n 785.5 2018, following several years of steadily growing, public debt remains low at close GDP per capita, current US$ 23411 weakening growth due to the 2014 oil to 20 percent of GDP at end -2018. a price shock, the implementation of The current account balance shifted into Scho o l enro llment, primary (% gro ss) 116.2 Life expectancy at birth, years a 74.6 OPEC+ oil production cuts and fiscal re- surplus in 2017 and is estimated at trenchment that resulted in an economic around 8.4 percent of GDP in 2018. Net Source: WDI, M acro Poverty Outlook, and official data. Notes: contraction of 0.7 percent in 2017 and FDI increased through 2018, following a pushed unemployment to 12.9 percent in long period of net outflows, but the (a) M ost recent WDI value (2016) the first half of 2018. Following a brief country continues to experience large period of deflation in 2017, headline pric- portfolio outflows. Central Bank reserves es rose by 2.5 percent in 2018, primarily remained broadly stable in 2018. Mone- reflecting the implementation of a 5 per- tary policy has continued to tighten in cent Value Added Tax (VAT). tandem with the US Fed, given the US The recovery in oil prices in 2017 -18 Dollar peg. Growth recovered to 2.2 percent in 2018, helped to narrow the fiscal deficit and Vision 2030 has spurred reforms in sever- supported by rising oil revenues and in- enabled a loosening of the fiscal stance to al areas, including a large switch to gas creased public spending. The outlook for support the economy. Government and renewables for domestic energy, and 2019 remains weak due to hefty oil pro- spending rose by 10.8 percent in 2018; business environment, SME and financial however, the deficit is estimated to have sector reforms. A bankruptcy law was duction cuts and volatile oil prices. The narrowed to 4.6 percent of GDP owing to promulgated in August 2018. Critical 2019 budget continues the expansionary healthy oil revenues and the introduction labor market reforms are underway, fiscal policy adopted since 2017, while of the VAT, and new fees and excises. The aimed at increasing the share of nationals, being sensitive to oil price outcomes for 2019 budget proposal targets a deficit of especially women, in the workforce. 4.1 percent of GDP alongside a 7.4 per- While employment of nationals, includ- deficit reduction. Vision 2030 related re- cent increase in recurrent expenditures ing women, has increased, impacts on forms are critical for diversification and and 19.9 percent increase in capital ex- private sector growth and productivity progress was made on business environ- penditures (largely to finance Vision 2030 are less clear. Levies on expatriate labor ment reforms. The ambitious reform mega projects). Actual deficit outturns and other disincentives for expatriate agenda could pose implementation chal- may prove higher given optimistic reve- employment have raised business costs nue assumptions in a context of contin- and led to the exit of nearly a quarter of a lenges for the public sector. ued oil supply pressure from Texas shale. million foreign workers. Going forward, Furthermore, Saudi Arabia intends to cut reforms will be needed to reduce the res- oil output to just under 10mb/d (from ervation wage for Saudi nationals as well FIGURE 1 Saudi Arabia / Unemployment rate FIGURE 2 Saudi Arabia / Trade balance, oil exports and imports Percent SAR bn 13.0 100 Trade balance Oil exports 12.5 80 Imports 12.0 60 40 11.5 20 11.0 0 10.5 Q2 Q4 Q1 Q3 Q2 Q4 Q1 Q3 Q2 Q4 Q1 Q3 Q2 -20 2012 2013 2014 2015 2016 2017 2018 Dec-15 Dec-16 Dec-17 Dec-18 Sources: Haver, World Bank. Sources: Haver, World Bank. MPO 174 Apr 19 as better manage foreign labor admission 3 percent in 2020 as oil production cuts are growth. On the upside, lower oil prices and mobility across sectors. reversed, and as large infrastructure pro- may increase the momentum for structural While no official information is available jects generate positive spillovers to private reforms under Vision 2030, and prompt the on poverty, as in other GCC countries, sector growth. Fiscal deficits are expected government to tackle difficult fiscal issues, most low-income residents are migrant to gradually narrow; nevertheless, achiev- such as the large and rigid spending on workers. As the citizen population crosses ing a balanced budget by 2023 (the target public sector compensation and benefits. the 20 million-mark, ensuring secure live- for the Kingdom’s Fiscal Balance Pro- A key challenge relates to the provision of lihoods and well-being for low income gram) will be contingent on a significant adequate labor to support sustained households may be challenging. Under rise in oil receipts or sustained fiscal con- growth. There is significant churn in the Vision 2030, authorities have launched a solidation. External surpluses are ex- labor market with the ongoing departure social protection fund (the Citizens Ac- pected to remain in the single digits as of expatriate labor, and job creation for count) which aims to offset the adverse infrastructure-related imports increase nationals has been lagging and unemploy- impact of subsidy reforms. Although early over the medium term. Consumer prices ment remains high. experience with such a rapidly scaled up are expected to remain muted in 2019, as Another challenge relates to the availabil- program is mixed, it is a promising foun- VAT effects wear off and food and hous- ity of significant investment to catalyze dation for supporting low-income house- ing costs moderate. the growth envisaged under Vision 2030, holds. Like other MENA countries, the old and the multi-sector nature of reforms. social contract—one based on government Planned reforms and infrastructure in- employment, generous subsidies, and free public services—is no longer sustainable. Risks and challenges vestments are also complex to design, and will require strong coordination across government and the capacity to adjust Public finances and growth remain vulner- plans in real-time based on learning Outlook able to volatility in global energy prices, while turbulence in global financial mar- through implementation. Finally, the successful implementation of kets could affect costs of financing for both Vision 2030 will depend in large part on Growth is expected to slow only moder- the sovereign and corporates, especially sustained political and social support for ately to 1.7 percent in 2019, as higher gov- given the financing needed to implement reforms. While a strong machinery is in ernment spending offsets the impact of oil Vision 2030 initiatives. A slowdown in the place to advance reforms, implementa- production cuts implemented in the first global economy and related fall in oil de- tion challenges can slow the pace and half of 2019. It should then recover to over mand would also hurt prospects for depth of reforms. TABLE 2 Saudi Arabia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2016 2017 2018 e 2019 f 2020 f 2021 f Real GDP growth, at constant market prices 1.7 -0.7 2.2 1.7 3.1 2.3 Private Consumption 0.9 3.2 3.0 2.0 2.2 2.2 Government Consumption -17.5 3.2 1.8 5.0 1.0 -0.9 Gross Fixed Capital Investment -14.3 -4.5 0.5 4.0 7.0 9.0 Exports, Goods and Services 8.0 -2.3 1.7 -0.8 3.0 1.0 Imports, Goods and Services -20.3 -0.4 0.5 2.0 3.0 3.5 Real GDP growth, at constant factor prices 1.7 0.6 2.3 1.7 3.1 2.3 Agriculture 0.6 0.4 0.2 0.6 0.6 0.6 Industry 2.5 0.0 1.0 -0.2 2.1 2.0 Services 0.7 1.6 4.4 4.5 4.6 2.7 Inflation (Consumer Price Index) 2.0 -0.9 2.5 1.0 2.0 2.0 Current Account Balance (% of GDP) -3.7 1.5 8.4 6.9 6.8 6.2 Net Foreign Direct Investment (% of GDP) -0.2 0.9 2.0 2.2 2.5 3.0 Fiscal Balance (% of GDP) -12.9 -9.2 -4.6 -5.2 -4.1 -3.3 So urce: Wo rld B ank, P o verty & Equity and M acro eco no mics, Trade & Investment Glo bal P ractices. No tes: e = estimate, f = fo recast. MPO 175 Apr 19