The future of the Saudi Arabian economy

Saudi Arabia has been well endowed by nature regarding oil resources. This has enabled the country's population to enjoy a standard of living higher than they otherwise would be capable of. There exist almost no export besides oil, and domestic supply of tradeables is very low. Domestic demand is kept afloat by government budgets, but since 1985/86 the government budget and the current account has been in deficits. This has restricted the government's prospects in policy-making. The economy has developed poorly during the 1990's. GDP per capita has been stagnant or even declining and severe financial imbalances have emerged. The country has a political and social structure that is probably not adequate in handling severe economic problems that cannot be eschewed much longer. This may lead to substantial changes in policies but also to changes in government that are very difficult to predict. This study focuses on alternative economic and political developments that may shape the future of Saudi Arabia. The first alternative serves as our reference case. No major changes in government policy or oil policy are assumed. Likely or ot, historical trends are carried forward. lt rather shows that something needs to be done because of poor economic results for the country as a whole. In the second alternative we assume that Saudi Arabia will enter VVTO, and therefore will reduce subsidies, privatise and introduce taxation in order to increase non-oil revenue of the budget. The third scenario is more dramatic in term of oil policy. Lack of funds enforces the government to take on a more aggressive oil policy in an attempt to avoid financial imbalances.

Acknowledgement: This project has been financed by the Research Council of Norway, (PETROPOL)