Economy of Saudi Arabia in 2021

The coronavirus pandemic created a lot of problems for countries around the world, and it is far from being over. Developed as well as developing countries are struggling to cope with numerous challenges.  The economy of Saudi Arabia suffered losses due to coronavirus pandemic.

Based on the report prepared by the Institute of International Finance, Saudi Arabia’s economy is set to grow by 2.3% in 2021. Stimulus measures implemented by the government as well as lower oil prices will help to boost the economy.

People should take into account that, the institute is forecasting a 5.2% economic contraction in 2020.

In the second quarter, the economy contracted by 11%. This fact once more underlines the severity of the problem. The pandemic caused significant damage to companies around the world.

Hopefully, the Institute of International Finance expects strong growth in the second half of the year as the rise in new cases slows and restrictions ease. Saudi Arabia has the potential to get its economy back on track as can be seen from the report.

Importantly, economic indicators such as the purchasing managers’ index data, private-sector lending, point of sales transactions, and cement output, suggest that the economy is recovering and this is good news. People should be aware that, the depth of contraction in 2020 and the speed of recovery in 2021 is subject to a high degree of uncertainty.

As stated above, the coronavirus pandemic continues to dominate headlines, as governments are working to contain the spread of the virus.

Saudi Arabia and economic diversification

Saudi Arabia is the world’s second-largest oil producer. However, the country wants to reduce its reliance on fossil fuels.

It is worth noting that, Saudia Arabia is in the midst of a major economic diversification plan – Vision 2030. The purpose of this plan is to decide its dependence on oil revenue. Interestingly, next year’s recovery will be led by the non-hydrocarbon economy. The non-hydrocarbon economy is expected to grow by 3.4% compared to 0.9% for the hydrocarbon sector.

Let’s have a look at the stimulus measures. Interestingly, the current private sector stimulus focuses on boosting residential housing loans, supporting small and medium enterprises, as well as non-oil financing.

Notably, the Ministry of Housing’s Sakani programme plans to build more than 100,000 homes are in 2020. As a reminder, the program provides land plots as well as funding to allow Saudi citizens to buy new homes.

This is not the end of the story, as stimulus measures also included monetary. Saudi Arabia’s central bank reduced interest rates by 125 basis points to 1%. Moreover, the Saudi Arabian Monetary Authority also provided liquidity to encourage lending to the private sector.

The country’s reserves are expected to decline by $54 billion in 2020, they will stand at $445 billion by the end of the year, equivalent to about 28 months’ worth of imports.

Notably, the pandemic is not over as it will take time to contain the spread of the virus. The next step is to vaccinate people all over the world. Despite all challenges, Saudi Arabia has the opportunity to boost the economy.