As the Kingdom continues to attract more foreign investment and expand its tourism industry, it moves closer to the objectives outlined in Vision 2030
In a testament to the Kingdom’s unwavering commitment to economic diversification and modernization, Saudi Arabia has experienced a meteoric rise in its gross domestic product (GDP), catapulting it into the ranks of the world’s most influential economies. From a humble starting point of SAR2.6 trillion, the nation now boasts a GDP exceeding SAR4 trillion, securing its place as the 16th largest economy amongst the Group of Twenty (G20).
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Khalid Al-Falih, the Saudi Minister of Investment, recently emphasized these achievements while addressing attendees at the Capital Market Forum in Riyadh. The event, which took place between February 19–20, served as a platform for discussing the future of finance, evolving strategies, and fostering innovation to bolster the growth of the financial sector.
Capital Formation and Economic Growth
The forum, which commenced on February 19, was a congregation aimed at deliberating on the future of finance, discussing the evolution of strategies, and brainstorming innovative ideas to amplify the growth of the sector. It was within this setting that Al-Falih pointed out the stride in capital formation within the Kingdom. Since the onset of the decade, there has been appreciable growth, peaking at 28 percent by the third quarter of 2023. Capital formation embodies the segment of a nation’s current output and imports that, within the accounting period, are neither consumed nor exported but are reserved as an enhancement to its capital goods inventory.
Al-Falih further underscored the burgeoning sectors such as tourism, which not only generate a surplus of investment for Saudi Arabia but also position the Kingdom as a chosen destination for foreign investors. Since the initiation of Saudi Vision 2030, foreign direct investment stocks in the nation have witnessed a spike of 52 percent.
Development of Saudi Arabia’s Recent GDP Growth
The International Monetary Fund (IMF) concluded its 2023 Article IV consultation with Saudi Arabia on July 20, 2023. The Saudi economy exhibited robust growth in 2022, emerging as the fastest-growing G20 economy, with an overall growth rate of 8.7 percent. This growth was fueled by strong oil production and a significant 4.8 percent expansion in non-oil GDP, primarily driven by vigorous private consumption and investment in mega projects. Key sectors such as wholesale, retail trade, construction, and transport were instrumental in driving non-oil growth, with the output gap closing during the year.
Remarkably, Saudi Arabia achieved a historically low unemployment rate, dropping to 4.8 percent by the end of 2022, attributed to increased labor force participation. This decline was notable among Saudi and expatriate workers, particularly in the construction and agricultural sectors.
Furthermore, youth unemployment halved over the past two years, while female labor force participation surpassed the targeted 30 percent under the Vision 2030 reform agenda.
Despite robust economic activity, inflation remained low and showed signs of easing. Average Consumer Price Index (CPI) grew moderately by 2.5 percent year-on-year in 2022, supported by domestic subsidies and a strong US dollar.
While there was a slight uptick in early 2023, headline inflation reverted to 2.8 percent year-on-year in May 2023, with declining transport and food prices counteracting rent increases.
The banking sector remained resilient, with strong capital adequacy ratios, high profitability driven by net interest margins, and a declining non-performing loan ratio. Although mortgage growth moderated, demand for project-related and consumer loans remained robust, balancing the impact of rising funding costs.
Favorable oil market dynamics bolstered the fiscal position, resulting in a surplus of 2.5 percent of GDP—the first since 2013. However, additional spending, particularly in goods, services, and capital, partially offset this surplus. Public debt remained low and sustainable at 23 percent of GDP, providing ample fiscal space to address potential challenges.
Saudi Vision 2030: A Blueprint for Transformation
The ambitious Vision 2030 is Saudi Arabia’s long-term plan aimed at reducing the country’s dependence on oil, diversifying its economy, and developing public service sectors such as health, education, infrastructure, recreation, and tourism.
Tourism, in particular, stands as a pivotal sector with the nation achieving its earlier set targets efficiently.
Faisal Al-Ibrahim, Saudi Arabia’s Minister of Economy and Planning, shared during the panel that the Kingdom has elevated its traveler goal from 100 million to 150 million by 2030, demonstrating the significant progress within this sector.
Global Economic Rankings
This leap in the global economic standings acknowledges not just the fiscal growth of Saudi Arabia but also accentuates the strategic shifts the country is making towards establishing a diversified and sustainable economy. As the Kingdom continues to attract more foreign investment and expand its tourism industry, it aligns closer to the objectives laid out in Vision 2030, setting a remarkable precedent for economic transformation and growth on the global stage.
Conclusion
Saudi Arabia’s economic rise and diplomatic engagements exemplify its pivotal role in shaping the global economy and fostering international cooperation. With Vision 2030 guiding its path, the Kingdom is poised for continued growth and collaboration on the world stage.
