Numerous indications point to the steady growth of the Saudi economy, thereby further strengthening the global position of the kingdom's gross domestic product (GDP). These factors include relatively high oil prices, solid oil output, and strong spending.
To be sure, nominal or market prices of Saudi Arabia's GDP amounted to $577bn in 2011, or number 20 worldwide. This is an exceptional achievement by virtue of placing Saudi GDP ahead of several European economies including those of Sweden, Poland, Belgium, Norway and Austria, to name a few.
Undisputedly, Saudi Arabia's GDP is the largest in the Arab world. This partly explains the fact that the kingdom is the sole Arab country in the G20, in turn comprising the largest economies in the world. Speaking of the Arab world, the size of the UAE's nominal GDP is only second to that of Saudi Arabia. With a GDP of $360bn, the UAE's economy ranks number 30 on a global basis, undoubtedly an extraordinary achievement. Among many others, economic values of Denmark, Greece and Malaysia lag behind that of the UAE.
Saudi GDP grew by an extraordinary 28 per cent in 2011 mainly due to developments in the oil sector.
Yet Saudi Arabia stands out of enjoying some influence on directions of oil prices by virtue of being the largest oil exporter in the world. At the moment, only Russia produces more oil than Saudi Arabia, but that could change in the current socio-political environment.
According to the BP Statistical Review of World Energy, an authoritative publication in the field, Russia and Saudi Arabia have output levels of 10.27 million and 10 million barrels per day, respectively. In effect, this translates into Saudi Arabia accounting for 12 per cent of oil output. Unlike Russia, the vast majority of Saudi oil output is destined for export.
It is believed that Saudi Arabia is capable of maintaining sustainable output of 12 million barrels per day.
This partly explains the kingdom's ability to compensate the international oil market for possible losses of output by other oil producing nations such as Libya in 2011. The Libyan revolution last year caused a temporary disruption in output, largely met by rising production from Saudi Arabia. Concurrently, Saudi Arabia has shown willingness to compensate for the loss of Iranian oil due to sanctions imposed by the US and the EU.
Certainly, strong oil prices add strength to the Saudi economy. In fact, oil prices having been hovering around $100 per barrel for the past few years, certainly a new phenomenon. Happily enough, the high oil prices are occurring at a time of ever stronger oil output for the kingdom. Looking forward, steady public sector spending provides a supportive hand. The budget for fiscal year 2012 puts spending at $184bn, a conservative figure when compared to actual spending of $214bn in 2011.
However, if history is any guide, actual spending is likely to be considerably higher, something put on display in fiscal year 2011. Conservative Saudi Arabia is noted for putting out notable unadventurous statistics with regard to both revenues and expenditures. In reality, the assumed oil figure for fiscal year 2012 can only be guessed, a questionable policy.
On a negative note, the well-being of the Saudi economy remains heavily at the mercy of developments in the oil sector. Currently, the petroleum industry accounts for more than two thirds of treasury income and exports as well as one third of GDP.
The challenge now lies in using the extra oil proceeds to diversify the economy away from the petroleum sector.
Oman Economic Review