The oil sector dominates Saudi Arabia’s economy – in 2010, it accounted for roughly 56% of GDP, 86% of exports and almost all (90%) of government revenues. This reliance on oil means it is hard to shield the economy from the oil price cycle, and so the economy has a business cycle that is geared to the oil one. The economy is on track to expand by around 6.5% in 2011, but growth will probably moderate in 2012 and 2013
As in the UAE, the Saudi government is keen to diversify the economy. It is also keen to boost living standards. The ninth national development plan (2010-2014) aspires to eliminate poverty and increase development in infrastructure, medical services, educational capacity, and residential housing.
It has initially focussed on energy-intensive petrochemical manufacturing and aluminium smelting, which can draw upon the kingdom's phosphate and bauxite deposits. But it also has plans to increase oil refining and to establish six ‘economic cities’ as service and manufacturing hubs.
Despite the improved macroeconomic situation, medium term challenges loom, notably ensuring that public finances are sustainable – the IMF estimates that the fiscal ‘break even’ oil price is around $80/b and could rise to close to $100/b by 2016 if current fiscal policies are maintained. Such a rise could amplify the budget’s exposure to adverse oil price movements.
After a subdued year of growth in 2009, the economy bounced back strongly in 2010. The economy is on track to expand by 6.5% in 2011, the fastest pace since 2003. The IMF expects the pace of GDP growth will ease to 3.6% in 2012 before picking up again to 4.4% in 2013.
The country has a high investment grade sovereign risk rating (AA- from S&P and Fitch and Aa3 from Moody’s). The country's creditworthiness is underpinned by external current account surpluses, declining public debt and swelling official net foreign assets. The central bank has net foreign assets worth an estimated US$444 billion, which is enough to cover more than 2 years worth of imports.