Saudi Arabia is transforming its economy by reducing its dependence on oil. The country, which faces budgetary pressures because of its dependence on fluctuations in oil production and prices, wants to change this. Historically, Saudi Arabia has been able to adjust its fiscal policy, including by freezing wages, which gives it a flexibility that other countries, particularly developed Western democracies, do not have.
Saudi Arabia's balance sheet remains solid, with a debt-to-GDP ratio of 30%. The country can still issue debt on the international markets and has substantial fiscal and foreign currency reserves.
As far as economic growth is concerned, the execution of all the planned projects could overload the economy. Although there is no official confirmation that these projects will be scaled back, such a measure would be welcomed by investors, as it would limit the pressure on public finances and external accounts.
To attract more foreign direct investment, Saudi Arabia needs to overcome a number of structural challenges, notably by diversifying its economy beyond oil. The necessary reforms must improve the legal, institutional and regulatory frameworks to strengthen the business environment. These reforms should aim to improve transparency and strengthen property rights.
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