Following the coup led by Mohammed bin Salman (MBS) in 2017, the Kingdom of Saudi Arabia has experienced multiple economic crises and mounting debt. The Kingdom’s debts have grown, citizen taxes have gone up, and prices for goods and services have increased, according to the 2023 budgets.
In the same context, specialized economic reports revealed that the Saudi economy faces challenging expectations in the coming years, given MBS’s inadequate policies, the failure of the government, and the decline in future planning brought about by his 2030 vision, which has not yet produced any results.
According to the report of the Arab Gulf States Institute in Washington, when the first official estimate of 2023 real gross domestic product is published by the Saudi statistical authority at the end of January, it is likely to show that the economy contracted by around 0.5% relative to 2022.
This is due to real oil gross domestic product, which is likely to have fallen by around 7% due to the large cuts in crude oil production in May and July 2023, the institute suggested.
The report also suggested that the non-oil economy is likely to have grown by a healthy 4%, driven by private consumption as households continued to take advantage of new spending opportunities in sectors such as entertainment and tourism.
Together with ongoing labor market reforms, this non-oil growth led to significant new job creation, and the Saudi unemployment rate fell to 8.6% in the third quarter of 2023 from 9.9% a year earlier. Nevertheless, two concerns are apparent in the recent data, the report indicated.
First, the non-oil economy lost steam as the year progressed, with year-on-year growth in the third quarter of 2023 at its weakest since the coronavirus pandemic. Second, investment spending, which is key to boosting productivity and supporting diversification, slowed sharply during 2023.
The report also revealed that oil production outside the OPEC+ group is surging, with U.S. crude oil output reaching record levels in recent months. This increase in production has pressured oil prices and led OPEC+, particularly Saudi Arabia, to cut production to support prices. Saudi Arabia has already announced that it will extend its oil production cuts through the end of the first quarter of 2024. The path of oil production thereafter is difficult to call.
Accordingly, OPEC is projecting only a modest increase in demand for its crude in 2024 as increasing non-OPEC supply meets most of the projected increase in demand. This means that the most likely scenario is that Saudi Arabia can only gradually restore a modest amount of the production it cut during 2023 without undermining oil prices.
The report came to the conclusion that the Saudi economy would face increasing challenges as a result of the unified economic policies that MBS imposed on the nation and its institutions without any kind of scrutiny. Which way will the Kingdom go in the future?
