Saudi Arabia Explored: Country Overview

Saudi Arabia, the largest economy in the Middle East, plays a central role in global energy markets and regional economic stability. With its vast oil reserves and strategic investments, the Kingdom has maintained robust economic strength, even as it navigates the complexities of global market fluctuations. A look at its economy will help guide future decision making.

Key Sectors

The Kingdom has done an excellent job so far in transitioning away from natural resources as a primary driver of economic growth. In 2023, the sectors with the highest growth as a percentage of GDP are:

Community, Social, and Personal Services.
Transport, Storage, and Communication.
Wholesale and Retail Trade, Restaurants, and Hotels.
Finance, Insurance, and Business Services.

These four sectors have seen positive growth rates of 10.8%, 7.3%, 7.0%, and 6.8%, respectively. Unsurprisingly, petroleum refining and crude petroleum and natural gas fell by 7.4% and 9.4% respectively. All other non-oil sectors grew.

Economic Trends

Gross Domestic Product

Saudi Arabia is a regional economic powerhouse. It is the largest economy in the Middle East and is part of the G20. Its vast natural resource reserves and production capacity have allowed it to experience significant growth over the past five years (Chart 1). The figure fell by 0.8% in 2023 due to voluntary cuts in oil production, which aimed to balance energy markets. Non-oil GDP continues growing rapidly.

Chart 1 | Saudi Arabia Gross Domestic Product

Inflation Rate

Whereas many major economies faced significant inflation, Saudi Arabia showed resilience due to its strong financial position and wise monetary policies. Its inflation rate stabilized from a high of 3.40% in 2020 to 2.30% in 2023 (Chart 2).

Chart 2 | Saudi Arabia Inflation Rate

Labor Market

Unemployment Rate

The unemployment rate temporarily rose in 2020 to 7.5%, then subsequently fell to 4.9% in 2023. The nation is prioritizing its citizens under Saudization programs that aim to hire and train Saudi nationals, providing them with growth, career progression, and a stable source of income. It also makes their labor more competitive globally.

Trade Overview

Exports

Saudi Arabia’s top export partners are China (16.6%), Japan (10.2%), and India (9.4%). Other notable partners are South Korea, the UAE, the USA, and Bahrain. One of the most important non-oil exports that help diversify the nation’s economy are chemicals and plastics, rubbers, and their derivatives. Non-oil exports made up around 17% of total exports in 2023.

Imports

Similarly, the country’s top import partners are China (20.9%), the USA (9.1%), and the UAE (6.4%). Key imported goods include machinery, appliances, vehicles, metals, and minerals, among many more. The country consistently stands as a net exporter, with merchandise exports exceeding imports by 55%.

Fiscal Position

Public Debt

Saudi Arabia is in a great position when it comes to loans. Its total debt, internal and external, stood at around $307 billion as of June 2024. As such, its debt-to-GDP ratio was 27%. It has been on an upward trend in recent years. However, as long as GDP and the economy keep growing and servicing costs are under control, this should not be an issue.

Fiscal Balance

Saudi Arabia had its first budget surplus in nine years in 2022. This turned into a deficit of $22 billion, or 2% of GDP, in 2023. This is simply explained by the significant capital expenditures and investments being made in large-scale developments. The government continues its pursuit of fiscal sustainability and controlled spending.

Foreign Inflows

Foreign Direct Investment

Foreign Direct Investment in Saudi Arabia is a central pillar of the Kingdom's strategy, aimed at diversifying the economy away from oil. In recent years, significant efforts have been made to attract FDI, including regulatory reforms that allow 100% foreign ownership in many sectors and initiatives to improve the ease of doing business.

Mega-projects and giga-projects aimed at growing local entertainment and global tourism are particularly attractive to foreign investors who aim to generate returns. In 2022, the Kingdom reached a record $33 billion, according to Ministry of Investment figures (Chart 3).

Chart 3 | Saudi Arabia Foreign Investment

Policy Measures

Taxation

To diversify revenue, the Kingdom introduced Value Added Tax (VAT) of 15% in 2018.

Privatization

The privatization program launched in 2018 aims to support the economy and enhance the role of small and medium enterprises.

Energy

The government is expanding its renewable energy sources to move away from oil.