Index Trend Previous Quarterly Editions
Expropriation Risk: 54 ► Political Violence Risk: 51 49 ▼ Terrorism Risk: 34 ▼ Exchange Transfer and Trade Sanction Risk: 45 ▲ Sovereign Default Risk: 26 37 ▲
Overall Risk Temperature TREND ▲
Special topic: Protest intensity in 2022 and Q1 2023* 2022 Q1 2023 Low Low All protest: Low Low
Cost-of-living protest risk in 2023* - Low
*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 calculations, see the introductory essay.
In 2022, Saudi Arabia enjoyed 8.7% economic growth, thanks to high oil prices and sustained demand. GDP growth in 2023 will be lower than the government’s 2.3% forecast in response to reduced oil income but will nevertheless remain close to the pre-COVID-19 pandemic average. Growth could be higher if any recession in the U.S. and Europe is avoided or if it does occur is short-lived, or if post-pandemic recovery in China accelerates.
The 2022 budget was in surplus by 2.6%, despite increased government spending. A smaller surplus is expected in 2023. The budget is thought to be based on an oil price of USD70-75 per barrel with Saudi Arabia working with OPEC+ to limit oil production to keep prices at current levels of around USD80 or higher.
Consumer confidence is high, reflected in elevated rates of consumption and the comparatively low rate of inflation of under 3.4%. Even if inflation increases and the U.S. dollar falls, Saudi consumers are protected by subsidies on some key items. Riyadh is using its healthy fiscal situation to raise its capital investment to reduce dependence on hydrocarbons in line with Vision 2030 through its Public Investment Fund and National Development Fund, and its focus on the large NEOM and other giga projects.
External factors present the risks to this optimistic picture, including the impact of the Russian/Ukraine crisis, given Ukraine’s importance to world food supplies. International sanctions on Russia have also seen world energy prices rise, since supplies cannot be sourced from Russia. Another external risk factor is the extent of post-COVID recovery in China where extended socioeconomic lockdowns caused great domestic and global economic destabilization, until Beijing abandoned its ‘zero-COVID’ policy in recent months. Oil prices, and inflation in key regional states such as Egypt and Lebanon, and the war in Yemen are further external factors that may undermine the positive outlook.
Riyadh continues to support Cairo, though it may move from making cash transfers to supporting projects to generate electricity. Meanwhile, the Chinese-brokered agreement (the Chinese President Xi Jinping went to Riyadh in December 2022) with Iran to restore diplomatic relations is encouraging, but it will take time for the two countries to build trust. Saudi Arabia will judge Iran by its actions in the region, especially Yemen, Lebanon, and Iraq. Just as the Saudi-Iran deal was announced, Riyadh leaked what appear to be its terms for closer relations with Israel, though it will not establish diplomatic relations as long as King Salman is alive.
Crown Prince Muhammad bin Salman (MBS), who was appointed Prime Minister in October 2022, is demonstrating greater independence in foreign affairs. The relationship with Russia is key to OPEC+ and the commercial ties with China are of vital importance. MBS will not put at risk the defence relationship with the U.S., but he will demand more from Washington. Saudi Arabia wants from Washington fewer restrictions on U.S. arms sales and assistance in building its nuclear programme, as well a continuation of broader security guarantees.
There is no organized discontent in the kingdom. MBS’s socially liberal policies remain popular among the large proportion of Saudis under 30 years of age, and any dissent is dealt with harshly through the legal justice system. Riyadh ignores international concerns over its human rights record. The regime has the will and the resources to weather any likely storms – internal or external – unless these are prolonged. Current economic policies are gradually transforming the economy and delivering jobs and income should help prevent any discontent.
Expropriation Risk 54 (Medium) TREND ►
The expropriation risk is very low given the substantial fiscal surplus and current levels of GDP growth. The non-oil sector is also performing robustly and continues to expand, a key factor in generating jobs for the high levels of young Saudi men – and increasingly women – entering the workforce.
Saudi Arabia has the funds to maintain current high investment levels and to protect consumers from imported inflation. Bank deposits increased by 8.7% in 2022 and bank credit to the private sector rose 12.6%. Despite a sharp increase in initial public offerings in 2022, foreign direct investment remains comparatively low but should rise as the world economy recovers. MBS has announced a further 4% of Saudi Aramco shares will be transferred to the Public Investment Fund, which will use it for investment in the economy.
The country is developing new incentives to stimulate private sector investment, including attracting major international companies to relocate to Saudi Arabia. Several new joint ventures have been announced for Saudi Arabia's mega projects, which should lead to an increase in foreign direct investment above the USD2 billion average of recent years.
Political Violence Risk 49 (Medium) TREND▼
A deal between Saudi Arabia and the Houthis over Yemen looks increasingly likely. Riyadh is desperate to end a war it cannot win. Meanwhile, the Houthis need international recognition and substantial funds for governance, which only Saudi Arabia and its allies can provide. The key Saudi aim is to end cross-border threats to its security from Yemen, Iran, or non-state actors such as Al-Qaeda in the Arabian Peninsula.
In the early part of 2023, three attempts to smuggle drone and missile parts (which could potentially threaten Saudi oil installations and cities) from Iran intercepted, but many more may have got through. Saudi Arabia and the Houthis are close to completing a deal which should see an extension and widening of the current de facto truce, raising the likelihood of the civil war ending in a way that will protect Saudi Arabia’s key security interests. However, there is increasing concern among Saudi Arabia’s allies in the internationally recognized government their interests may be discarded.
Riyadh has been much more proactive – but is not yet doing enough – to bolster the position of the Head of the Yemeni Presidential Leadership Council, Rashad al-Alimi, and weaken the influence of the Southern Transition Council, which controls Aden and the surrounding area and wants to restore an independent South Yemen. Even if the war ends and Iran reduces support for the Houthis, political violence in Yemen could well continue.
Meanwhile, there is little prospect of a return to the multilateral nuclear agreement with Iran, which originally came into force in 2015. However, if Saudi Arabia and Iran establish mutual trust, more limited agreement may be reached.
Terrorism Risk 36 (Medium-Low) TREND ▼
The terrorism risk in Saudi Arabia continues to decline. Al-Qaeda in the Arabian Peninsula and Islamic State no longer pose serious threats within Saudi Arabia or from Yemen, where drone strikes against have killed key leaders and a security operation has had some success in driving the groups out of surviving camps.
Tensions in the Shia areas of Saudi Arabia remain in the background but there is no sign of any serious organised 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.
Exchange Transfer and Trade Sanctions Risk 45 (Medium) TREND ▲
The risk here is low. Foreign exchange reserves were at USD453 billion at the end of 2022 and have been around this level for the last two years. With oil prices likely to remain high in the short term at least, Saudi Arabia should have ample funds for its proposed expenditure and to sustain or increase the current level of reserves.
Sovereign Default Risk 37 (Medium-Low) TREND ▲
The risk of a sovereign default is low, not least given the financial position described above. Meanwhile, Saudi Arabia has inaugurated a National Industrial Strategy which aims to put the country in the top 15 industrial countries by 2035. 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 four million barrels per day to plastics, fertilisers, and other high-value products. The resultant items will be for export profit and creating jobs.
