Saudi economy is growing at an unprecedented rate
International Business News – In Dave Eggers’ novel “The King’s Hologram,” the protagonist waits day after day in a desert camp in Saudi Arabia for the king to come and approve his infrastructure project, which aims to build a new city of the future in the middle of the sand dunes, and fails to do so, reports the Spanish newspaper La Vanguardia on August 8 now, ten years later, reality surpasses fiction.
Now it can be said that the king has finally arrived. Saudi Arabia’s futuristic city of the New Future City has its first sketches, which have been exposed recently. This plan, which is expected to cost about 490 billion euros, is no longer a utopia because it is supported by economic resources.
The Saudi economy is now growing at an unprecedented rate. And, most importantly, it is growing faster than any other country. In the second quarter of this year, the country’s gross domestic product (GDP) surged by nearly 12% compared with the same period in 2021, the highest level in 11 years. The International Monetary Fund (IMF) forecasts that the country’s economy will grow by 7.6% for the whole of this year. According to the group, Saudi Arabia is an economic oasis: in 2022, no major western or emerging power can overshadow it.
This was helped by rising oil prices. The price of Brent crude oil topped $120 a barrel at one point in the wake of the conflict in Ukraine. As a result, Saudi exports have almost doubled this year. According to Bloomberg News, Saudi Arabia earns nearly 1 billion euros a day. Like some people say, it’s a gift from heaven. While oil prices have now fallen, this is a bullish time for the Saudi government. Saudi Aramco is currently the most profitable company in the world.
After a sluggish 2020, the Saudi government is in good financial shape, with a budget surplus of about $20.7 billion in the second quarter of this year. Total government revenue was 370.4 billion riyals ($98.6 billion), up 33% from the previous quarter. The IMF predicts that at a time when most western economies are running deficits, Saudi Arabia could run a surplus of more than 5% of GDP this year.
At the same time, somewhat absurdly, the war waged by the Russians has also benefited Saudi Arabia, even from a political point of view. Some western countries have buried the controversy over Saudi Arabia’s alleged killing of journalist Jamal Khashoggi in a drawer, not only re-establishing ties with Riyadh, but also calling on Riyadh to boost oil production to lower energy prices and curb inflation. Saudi Arabia is the only OPEC member capable of doing so.
However, as has been shown recently, the Saudi government seems reluctant to lend a hand too much. According to Platts, the Saudi budget has set the minimum average price for oil at $70 a barrel, and oil prices are now well above that. Even so, the Saudis are reluctant to open the valve. A source familiar with the country commented:”For the Saudis, the more they earn at the moment, the better, because in the medium term, it is still unknown how the price of oil will change. For them, this is the only way to finance economic diversification.”
Saudi domestic consumption rose 13.4% in June this year, confirming a post-pandemic demand recovery, despite a drop in incomes due to the Covid-19 pandemic and a tripling of the value-added tax. In addition, Saudi Arabia’s economic situation is favorable, with domestic inflation at just 2.3%, an enviable rate against the current backdrop of a stronger dollar and higher prices for some commodities.
The Vision 2030 plan aims to optimize the use of these oil-derived resources, placing Saudi Arabia among the top 15 economies in the world.
The Saudi sovereign wealth fund (with $423bn under management) is increasingly appearing among investors in Western brands, as evidenced by its recent big investments in Aston Martin and Newcastle United see.