Saudi Arabia’s economic growth defies regional instability

Via Middle East Eye

Saudi Arabia’s economy has advanced despite Israel’s war in Gaza and Houthi attacks in the Red Sea, suggesting that the kingdom’s efforts to distance itself from regional tensions are paying off, literally. “Geopolitical events in the Middle East have not had any major impact on the Saudi economy so far,” the International Monetary Fund (IMF) said in its latest report on the kingdom’s economy.

The report says that Saudi oil exports are not dependent on the Red Seawhere the Iran-backed Houthis have targeted merchant ships in what they say is solidarity with the Palestinians in Gaza. Also, tourism figures from Saudi Arabia “remain strong”. In general, The IMF has painted a rosy picture of the Saudi Arabian economywith a strong banking system, growing property and “robust” non-oil economic growth.

The report points out the divergence between the economies of the Gulf and those of poorer states such as Egypt, Lebanon and Jordanwhose already weak economies have been hit by Israel’s war.

Saudi Arabia will take the IMF report as an affirmation that it has successfully maneuvered to avoid being absorbed into the Gaza war. Saudi Arabia has become more vocal in demanding that Israel take steps toward a Palestinian state, and it has frozen talks to normalize ties with Israel, but renounced any other measures of solidarity with the Palestinians.

Saudi Arabia has he also avoided joining the US military campaign against his former enemy, Iran-backed Houthis in Yemen. As the group wages a war on commercial shipping, Saudi Arabia has eased banking restrictions on them and resumed flights to Yemen.

Despite tensions in Gaza, which have raised concerns of a regional conflict, Saudi Arabia has focused on economic growth as part of Crown Prince Mohammed bin Salman’s Vision 2030 program. designed to wean the Saudi economy off petrodollars.

The program is paying off. At the end of 2023, Saudi Arabia’s unemployment rate has hit an all-time lowmainly due to private sector job growth, the IMF said.

Saudi Arabia’s non-oil GDP reached 3.8% in 2023, a slowdown from 2022 when it reached 5.3%, but was still “robust” thanks to strong investment and private consumption. However, the IMF also noted that Saudi Arabia has has “recalibrated” some of its more ambitious mega-projects.

The kingdom had to reduce Neom, a 1.5 trillion dollar mega city project which organizers say will eventually be 33 times the size of New York City and include a 170 km city ​​in a straight line. Instead of 1.5 million residents in the city by 2030, Saudi officials now anticipate fewer than 300,000 residents. Meanwhile, only 2.4 km of the city is to be completed by 2030.

The crown prince’s schedule depends on oil revenues. The IMF estimates that Saudi Arabia it needs oil prices at $96 a barrel to balance its budgetabout $20 less than they are now. The kingdom has tried to balance its efforts to support oil prices by cutting production and pumping crude before global energy demand peaks.

The IMF’s assessment that Saudi Arabia’s oil revenues could fall faster than previously estimated will raise concerns among Saudi officials. Revenue is expected to rise to $209 billion in 2026, about 26 percent of GDP, before falling more rapidly in 2029 to 4.1 percent less than previously expected.

By Zerohedge.com

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