ECONOMY

ECONOMIC TRANSFORMATION TAKES CENTRE STAGE IN 2024 BUDGET

The Saudi economy is in the midst of a remarkable transformation, guided by a comprehensive system of economic and fiscal reforms aimed at realising the objectives of Vision 2030. By focusing on strategic spending, and targeting key sectors and regions, authorities aim to expedite project implementation, diversify the economic base, and promote sustainability, while raising service standards for its citizen.

All these goal are reflected on the budget statement released by the Ministry of Finance for fiscal 2024, which renews the government’s commitment to structural economic changes aligned with Vision 2030. This, in turn, is expected to fortify the kingdom's economy, enabling it to navigate global economic challenges effectively.

“The initial estimates for FY 2024 indicate 4.4% growth of real GDP, supported by the growth of non-oil activities GDP resulting from the economic reforms as well as efforts that will further accelerate the process of economic diversity, while enhancing sustained economic growth,” according to the latest budget report. “This rise is also attributed to the programmes and initiatives that establish the private sector as a main driver of the economy and a contributor to job creation.

The kingdom's efforts in economic diversification are evident through the launch of various programmes and initiatives, coupled with the establishment of four special economic zones, each with its unique features.

These zones are designed to foster innovation, support the domestic economy, and assist small and medium enterprises across different regions.

Strategically, the kingdom aims to achieve the goals of Vision 2030 through investment arms such as the Public Investment Fund (PIF), a key driver of economic growth and diversity. PIF has been tasked to spearhead global and domestic projects, launch new sectors, and realise the country’s objectives in an evolving economic landscape.

NO LET-UP IN GROWTH

Despite global challenges, Saudi’s real GDP for the first half of 2023 remained on positive territory with a notable 5.4% increase in non-oil activities, highlighting the private sector's role in driving recovery. However, oil activities experienced a decline of 1.3%, which had been attributed to voluntary oil production cuts as per OPEC+ agreements. Projections for 2023 indicate a 0.03% growth in real GDP, primarily driven by non-oil activities, with a more robust 5.9% growth anticipated in 2024.

In the fiscal landscape, total revenue for the year is estimated at SAR 1.19 trillion, reflecting a 5.6% increase from the approved budget. Non-oil revenues played a crucial role in this growth, showcasing the kingdom's success in expanding non-oil economic activities and improving tax management. Earlier estimates show sustained growth, which will likely reach SAR 1.26 trillion in 2026.

Total expenditures for 2023 are projected to stand at SAR 1.27 trillion, a 14.5% increase from the approved budget. This uptick is due to the government's commitment to shielding citizens from global inflation, enhancing social spending, and developing public services and infrastructure. Looking ahead, authorities plan to employ fiscal policies to increase spending on major development programmes, regional strategies, and sectoral initiatives, contributing to sustainable economic growth.

The fiscal deficit for 2023 is estimated at SAR 82 billion, equivalent to 2.0% of GDP. This level is expected to remain in 2024 due to strategic expansionary spending. To meet financing needs, domestic and external borrowing activities will continue, with the kingdom leveraging market opportunities for additional funding. Total debt is projected to be around SAR 1.10 trillion in 2024, equivalent to 25.9% of GDP

LABOUR MARKET

Recent developments in the labour market have also been encouraging, with total unemployment in the second quarter of 2023 declining to 4.9% – a marked improvement from 5.1% in the first quarter. Unemployment rates among Saudis also saw a decrease to 8.3%, or a 0.2 percentage points drop compared to Q1, representing the second lowest rate in over two decades.

This decline aligns with the continuous and accelerated growth of the private sector and small and medium enterprises. Support is also evident in the development of major sectors such as tourism, the increase in local content in projects for national industry and logistics services, and the encouragement of national exports and privatisation programmes. These efforts have generated new opportunities for citizens and facilitated the absorption of additional Saudi workers into the labour market.

Efforts to localise quality jobs has raised the number of Saudi employees in the private sector through to the end of the third quarter by around 153,000 workers, a growth of 7.2% compared to the previous quarter. The total number of Saudi workers in the private sector soared to 2.3 million.

“Women’s participation rates in the labour market rose steadily, as the rate increased in Q2 of 2023 to reach 35.3%, exceeding the Saudi Vision 2030 goal of 30%,” according to the government statement. “This rise clearly reflects the understanding of the importance of women’s participation in the workforce, and the success of women’s empowerment plans and initiatives launched by the Government over the past years.

DIVERSIFICATION STILL IN FOCUS

The government also expects global oil demand to improve in 2024 and grow by 2.3 million barrels per day (bpd) compared to the previous year, reaching an average of 104.4 million bpd, which should buttress growth and help channel oil revenues to non-oil sectors.

The 2024 budget emphasises strengthening the government's financial position. Various revenue scenarios, accounting for global and local developments, geopolitical conditions, and inflation rates, have been considered to enhance financial planning and readiness.

The fiscal reforms outlined in the budget signify a determined effort by the Saudi government to navigate economic challenges, drive diversification, and propel sustainable growth in alignment with Vision 2030. The kingdom's commitment to economic transformation and fiscal sustainability sets the stage for continued progress in the years to come.