Previous Quarterly Editions
Expropriation Risk: 53 54 52 52 ►Political Violence Risk:51 49 48 50 ▲Terrorism Risk:36 34 34 30 ►Exchange Transfer and Trade Sanction Risk: 35 45 45 45 ►Sovereign Default Risk:26 37 37 37 ►
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Protest intensity to date* 2022 2023 Low LowUnrest risk in 2024**Cost of living: MediumAnti-austerity: Medium
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
Saudi Arabia does not face an internal debt crisis, despite the ambitious scale of its investment into reducing its dependence on hydrocarbons and diversifying its economy in line with “Vision 2030” plans. Riyadh exploits and helps sustain the current high level of oil prices to drive this investment while being aware of the impact of expensive hydrocarbons on the world economy, the situation in countries in the wider region, and the policies of the United States and other key partners. Substantial reserves can cushion the effect of any unexpected and prolonged fall in oil prices.
The government has revised its baseline forecast for GDP growth in 2023 to 0.03% compared with 2.3% estimated in December 2022 (which was close to the pre-COVID-19 average) and the exceptional 8.7% achieved in 2022. Saudi Arabia in June 2023 imposed a cut of 1 million barrels per day on its oil production and subsequently extended this to the end of 2023, which in addition to similar measures by Russia, pushed the price of Brent crude to over US$95 per barrel. The kingdom will need oil prices to remain around their current level as the budget is based in an oil price of US$70 to US$75 per barrel — although, given the level of off-budget spending, US$90 may be a more likely breakeven point.
A 2% fiscal deficit (US$21.8 billion) in 2023 is now forecast compared with the original expectation of a small surplus. Fiscal deficits are also forecast for 2024 (1.9%) and for 2025 and 2026.
The government says it will maintain the current level of spending in line with its aims for Vision 2030 but is committed to achieving fiscal sustainability. Some government spending — for example, “sportswashing” — seems designed to enhance the image of the Crown Prince Muhammad bin Salman (MBS) abroad but is popular with younger Saudis who welcome greater social and economic freedom and seem unconcerned by the lack of political liberties. Current economics are delivering jobs that should help prevent any discontent.
The risks come from external factors: inflation, the continuing war in Ukraine, price rises caused by declining exports of wheat and foodstuffs from Ukraine, and concern about China’s economic performance (Saudi Arabia’s largest trading partner). Saudi Arabia will need to take account of how its drive for higher oil prices can exacerbate inflation — not least in Egypt, a key regional ally that is in serious economic difficulties.
Riyadh is having some success in dealing with other regional threats. The kingdom’s reconciliation with Iran continues, despite a mutual lack of trust as each is taking a pragmatic approach to reducing tensions between them. This may be a factor in recent Saudi and Huthi moves to end the war in Yemen, but it is likely that even if there is peace between Riyadh and Sanaa, Yemen will remain an unstable presence on Saudi Arabia’s southern border in the medium term at least.
Saudi Arabia is under pressure from the United States to normalize relations with Israel. Riyadh is using this to test if it can negotiate a far-reaching security guarantee from Washington and concessions on Palestine, which the United States and Israel will find difficult to deliver. Normalization will not take place as long as King Salman is alive, as he would expect major Israeli concessions over its treatment of Palestinians that the current Israeli government finds unpalatable. The negotiations show the importance to Saudi Arabia of security guarantees that only the United States can realistically provide. Riyadh is pursuing transactional relationships with Russia over oil and China over trade and is joining
BRICS grouping, but only Washington is able to provide what Saudi Arabia wants.
An additional difficulty now, as of October 2023, is the war that has suddenly erupted between Hamas and Israel. That could draw in other parts of the Middle East, especially if it were found that Iran had supported Hamas’ attack.
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The expropriation risk is very low given the level of oil prices, GDP growth, and a growing and robust non-oil sector that generates jobs for young Saudis, especially women now entering the workforces in greater numbers. Inflation in August 2023 fell to 2.3% and has been below 3% for well over a year. Saudi Arabia aims to keep any borrowing at around 27% of GDP over the next three years.
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A deal between Saudi Arabia and the Huthis over Yemen looks increasingly likely, though it is taking time for them to agree on the details. Saudi Arabia wants to end any security threat from Yemen and in particular missile or drone strikes on Saudi economic targets. The Huthis seek international recognition and substantial funds for governance, which only Saudi Arabia is able and willing to provide. Even if there is agreement on a more permanent cease-fire, it will not end Yemen’s problems.
Saudi strategy has been to build up the strength and coherence of the Presidential Leadership Council (PLC) so that it either becomes a credible negotiating partner for the Huthis or, if necessary, can prevent the Huthis from using Huthi forces to control of the whole of Yemen. This strategy is not working: The PLC is divided, and the most powerful faction — the Southern Transition Council (STC) — wants to restore an independent southern state and controls the area around Aden. The United Arab Emirates continues to back the STC, leading to strains in its relationship with Saudi Arabia; the U.S. government has urged the two partners to sort out their differences. These tensions are visible to the Huthis, who will seek to exploit them in their long-term aim to dominate Yemen.
Despite recent U.S. and Saudi moves, there is little prospect of a return to the multilateral nuclear agreement with Iran, which originally came into force in 2015 (former U.S. President Donald Trump left the deal when he was in office). Nor is there yet any visible evidence of a reduction in Iranian support for the Huthis.
Al-Qaida in the Arabian Peninsula (AQAP) and Islamic State no longer pose serious threats within Saudi Arabia or from Yemen, where drone strikes have killed key leaders and a security operation has had some success in driving the groups out of surviving camps; however, the pressure needs to be kept up, as AQAP has shown itself to be resilient over the years.
Tensions in the Shia areas of Saudi Arabia remain in the background, but there is no sign of any serious organized terrorist group. Better Saudi-Iran relations will help, as would a settlement in Yemen.
The MBS-led campaign to marginalize more extreme interpretations of Sunni Islam — backed by most young Saudis — should reduce the already low risk of Shia violence.
The risk is low. Investment in Neom and other giga projects continues in line with Vision 2030, and several new projects have been announced. The Public Investment Fund is to invest US$3.3 billion to create a national steel “champion.”
Saudi Arabia is putting pressure on foreign companies that want contracts to move their regional headquarters to the kingdom. Foreign exchange reserves fell by US$16 billion in July 2023 but are still high at US$427 billion, in part reflecting remittances and greater private investment abroad.
The risk of sovereign default is low, not least given the financial position described above. Saudi Arabia has inaugurated a National Industrial Strategy, which aims by 2035 to put the country in the top 15 industrial countries. In implementing this strategy, the government will set up eight new economic zones.
The government is also planning to allocate more than a third of its current oil output to chemical production by 2030, converting 4 million barrels per day to plastics, fertilizers and other high-value products. The resultant items will be for export profit and the creation of jobs in Saudi Arabia.
