Saudi Arabia’s foreign reserves have plummeted to their lowest level since 2009, raising concerns about the kingdom’s economic stability under Crown Prince Mohammed bin Salman’s leadership. In July 2024, the Saudi Central Bank’s foreign assets fell by 19.9 billion riyals, or 3.4%, bringing the total reserves to 1.59 trillion riyals. This decline, coupled with the ongoing contraction of the country’s GDP, highlights the growing challenges facing the Saudi economy as it grapples with the consequences of mismanagement and questionable spending priorities.
Economists have pointed to bin Salman’s economic policies as the primary driver of this downturn. His administration’s focus on grandiose projects, many of which have failed to yield significant returns, has diverted resources away from more productive investments. Additionally, the kingdom’s worsening human rights record has deterred foreign investors, further exacerbating the economic strain.
The World Bank has also issued warnings to the Saudi government, advising it to curb its spending, particularly on projects that do not contribute to economic growth. In its latest report, the World Bank predicted that the kingdom’s fiscal deficit would widen this year. While the 2024 budget had forecasted a deficit of just under 2% of GDP, the reality may be closer to 3% due to lower-than-expected oil revenues and continued overspending.
This fiscal imbalance has been compounded by Saudi Arabia’s reliance on financial support from Aramco, the state-owned oil giant. The World Bank’s projections indicate that the fiscal deficit could average 2.5-3% of GDP over the medium term if current spending patterns persist. This forecast assumes that no new revenue measures will be introduced and that the government will continue its ambitious investment plans. However, these plans may require significant cuts to current spending, particularly in wages and goods and services, to achieve the desired fiscal outcomes.
Despite these challenges, Saudi government deposits at the Central Bank are expected to remain above 10% of GDP, with foreign borrowing playing a critical role in financing the deficit. However, this strategy comes with risks, as the public debt-to-GDP ratio is projected to reach around 35% by 2029.
The economic challenges facing Saudi Arabia are compounded by bin Salman’s prioritization of extravagant projects over the nation’s economic well-being. The Crown Prince’s ambitious Vision 2030 plan, which aims to diversify the economy and reduce reliance on oil, has so far failed to deliver the promised benefits. Instead, billions of riyals have been funneled into projects such as luxury palaces, entertainment events, and other initiatives that have done little to improve the lives of ordinary Saudis.
The impact of these policies is reflected in the kingdom’s shrinking GDP, which has contracted for the fourth consecutive quarter as of Q2 2024. The economy declined by 0.4% year-on-year during the April to June period, driven primarily by an 8.5% contraction in the oil sector. The non-oil sector, which was supposed to be the cornerstone of Saudi Arabia’s economic transformation, has not generated the job opportunities needed to address the country’s high unemployment rates. As a result, many Saudis continue to struggle with poverty and joblessness, despite the nation’s immense oil wealth.
The situation is becoming increasingly dire, as the gap between the government’s spending priorities and the needs of the population continues to widen. While bin Salman pursues his vision of transforming Saudi Arabia into a global powerhouse, ordinary citizens are left to bear the brunt of the economic fallout. The failure to address these underlying issues threatens to undermine the kingdom’s long-term stability and prosperity.
As Saudi Arabia moves forward, it is crucial for the government to reassess its economic strategies and prioritize investments that directly benefit the population. Without a course correction, the kingdom risks further economic decline and social unrest, driven by a growing sense of disillusionment among its citizens.
The time for reform is now. The Crown Prince’s grand ambitions must be balanced with practical solutions that address the immediate needs of the Saudi people. Only then can Saudi Arabia hope to achieve the sustainable growth and prosperity envisioned in its ambitious plans.
