Overview of Saudi Arabian Economy
As a country, Saudi Arabia possesses three distinct characters; as a strong and independent Arabic country; as the country that provides home for two holiest Muslim cities; and as the single largest producer of oil in the world. On the economic front, it is the oil reserves of the country, which has turned this desert nation into one of the strongest economies of the world. It was due to the relentless efforts of the House of Saud from the year 1902 until 1932 that unified the tribes of the desert nation against the colonial powers of United Kingdom and France.
These efforts led to the creation of Saudi Arabia as an independent nation under the guidance and steering by House of Saud as the country’s royal family. Many of the prominent Saudis have sent their sons to the United States and Western countries to study and these people have brought back Western economic thoughts back into the country. With the economic ideas brought in by these people, the extremely religious society has turned slowly into one of the progressive economies of the world.
This chapter briefly outlines the background of Saudi economy and the financial system prevailing in the country along with the monetary policies implemented in the country. Background and Overview of the Economy With a view to encourage the inflow of foreign direct investments into the country, the government set up the Saudi Arabian General Investment Authority in the year 2000. However, the country continued its restrictive policies in respect of certain industries. As an integral part of the economic reforms instituted by the country, the government decided to get the accession into the World Trade Organization (WTO) in the year 2005.
These steps taken by the Saudi government has accelerated the economic growth to reach an average of over 5 percent in the last few years. The economic growth is in tandem with the increase in demand for oil and other petroleum products throughout the world. Because of the economic growth, the country has also become one of the active investors in other countries of the world. Despite the rapidity of the economic growth, there are major challenges that the country faces; like the aquifer depletion and the increased cost of water supply.
Continued dependence on oil and political instability in the Middle East are some of the other issues that draws the attention of the country away from the economic progress. Demographic factors also cause serious concern in the economic outlook of the country with 40% of the population with an average age of 15 or less, low education and higher unemployment levels. These issues are likely to result in major social unrests. The Saudi Arabian economy is oil-based with the government having a strong control over major economic activities of the country.
The country is in possession of more than 20% of the world petroleum reserves and is the largest exporter of oil mainly to United States and many other countries. The country is an active member of Organization of Petroleum Exporting Countries (OPEC), and plays a leading role in the activities of OPEC. As of May 2008 75% of Saudi’s budget revenues is contributed by petroleum sector and 45% of the Gross Domestic Product (GDP). During the same period, 90% of the export earnings are from petroleum exports. The country has an expatriate population of about 5. 5 million workers who contribute to the development of the economy.
Increase in oil prices and the macroeconomic and structural reforms undertaken by the country enabled Saudi Arabia to accelerate the momentum of its economic growth. The economic reforms measures were undertaken by the government to support the comprehensive and sustainable economic development in all the economic and social areas of the country. The continued increase in oil prices until mid 2008 coupled with the supportive actions initiated by the government witnessed an all round improvement in the performance of all sectors of the economy. The overall GDP registered a growth of 7.
1 percent in current prices (Riyals 1. 4 trillion) and 3. 4 percent in real terms (Riyals 813. 0 billion) for the year 2007. There was a surplus in the State budget to the extent of 12. 3 percent of GDP (Riyals 176. 6 billion) as against the surplus of 21 percent (Riyals 280. 4 billion) for the previous year.
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