Saudi GDP per capita estimated at $26,000

Standard & Poor’s Ratings Services affirmed its long- and short-term foreign and local currency sovereign credit ratings on Saudi Arabia at ‘AA-/A-1+’.
The outlook remains positive.
The positive outlook reflects S&P’s view that there is at least a one-in-three chance that the ratings agency could raise its ratings on Saudi Arabia in the next year, according to an S&P statement.
The ratings are supported by the very strong external and fiscal positions Saudi Arabia has built up over several years.
By managing high oil revenues prudently, the government has retired virtually all of its debt, generating additional fiscal space for countercyclical policies.
S&P estimates the general Government’s net asset position at close to 110 percent of GDP on average during 2014-2017.
Notwithstanding the assumption that the oil price will decline to about $95 per barrel by 2017, S&P expect that Saudi Arabia’s current account surpluses will average a still-high 12 percent of GDP and external debt net of liquid external assets will remain strong averaging about 200 percent of current account receipts over the same period.
S&P estimates Saudi GDP per capita at $26,000 in 2014.
Trend growth in real per capita GDP, measured using 10-year weighted-average growth, amounted to two percent during 2008-2017, which is in line with peers that have similar GDP per capita.
S&P notes that government reforms are resulting in some improvements to the highly segmented labor market.
Latest data indicate that Saudi nationals’ share of total employment increased to 24 percent in 2013 from 22 percent in 2012.
The ratings agency estimates that 70 percent of the increase took place in the private sector, which now accounts for around 56 percent of the employment of Saudi nationals.
Meanwhile, women’s share of total employment increased to 9.4 percent in 2013 from 7.7 percent in the previous year. However, the unemployment rate remained high at 11.7 percent for Saudi nationals and 0.2 percent for non-Saudis (overall 5.6 percent).
It remains to be seen whether the private sector can generate jobs sufficiently attractive to Saudi nationals to absorb the significant inflow into the labor market expected in the coming years.
Saudi demographic data show that about 40 percent of the population is younger than 20.
Moreover, with the employment of Saudi nationals mostly requiring higher labor costs than the expat population, unit labor costs could rise and in turn weaken overall economic competitiveness.
S&P views Saudi Arabia’s economy as undiversified and vulnerable to a sharp and sustained decline in the oil price.
About 85 percent of exports and 90 percent of government revenues stem directly from the hydrocarbons sector.
The IMF calculated Saudi’s fiscal breakeven oil price — the oil price necessary to balance the government’s budget--at $84 in 2013.
The hydrocarbon sector accounts for slightly less than half of GDP. However, the non-hydrocarbon sector relies to a significant extent on government spending (funded by hydrocarbon revenues) and downstream hydrocarbon activities.
Saudi Arabia’s significant gas and oil revenues are supportive of the current ratings.
Sustained high oil prices over the past few years have helped bolster financial buffers, maintaining government liquid assets at above 100 percent of GDP and significantly offsetting the concentration risk related to the economy’s hydrocarbon dependency.
According to S&P estimates, based on the 2013 BP Statistical Review of World Energy, Saudi Arabia’s annual production of both oil and gas--about 5 billion barrels of oil equivalent — could be maintained for the coming 66 years, given 320 billion barrels of oil equivalent in estimated reserves. However, in terms of years of hydrocarbon production at current levels, Saudi Arabia is surpassed by Qatar (114), Kuwait (92), and the UAE (89). As a result — alongside the high share of hydrocarbons in nominal GDP, exports, and a relatively high fiscal breakeven oil price — we view diversification away from the oil sector as a more pressing issue in Saudi Arabia relative to some other GCC countries.
Saudi Arabia is an absolute monarchy in which decision-making is highly centralized in the hands of the king and the ruling family. S&P finds that this makes policymaking more difficult to predict. Political institutions are still at an early stage of development compared with those of nonregional peers in the ‘AA’ ratings category and S&P detects little scope for direct political participation.
Given the SAR peg to the US dollar, monetary policy flexibility as limited; the long-standing currency peg anchors expectations but binds Saudi Arabia’s monetary policy to that of the US Federal Reserve. Furthermore, the authorities’ ability to transmit their monetary policy is affected by the underdevelopment of the domestic bond market.

Outlook
The positive outlook reflects S&P’s view that there is at least a one-in-three chance that the ratings agency could raise its ratings on Saudi Arabia in the next year.
A decisive factor will be the assessment of the government’s ability to keep building on economic diversification efforts and strengthen its private-sector labor market for its citizens.
Some of these measures would be reflected in increased economic competitiveness and rising income levels beyond current expectations.
S&P could revise the outlook to stable if it anticipated that weaker economic growth or sustained lower oil prices could lead to GDP per capita that was not commensurate with an improved assessment of economic risk.
The ratings could also come under pressure if domestic or regional events compromised political and economic stability.