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Saudi Arabia’s diversification from the oil sector will take time

23rd April | Dubai

Euler Hermes, the world’s leading provider of trade-related credit insurance solutions, said in its latest analysis on The Kingdom of Saudi Arabia that the government-initiated actions to address the economy’s heavy dependence on the hydrocarbon sector which accounted for 44 % of GDP in 2016 will take time as long-term projects will face challenges such as the transfer of public sector jobs to the private sector.

According to Euler Hermes, Saudi Arabia’s weakness is its dependence on international oil prices along with a narrow economy focused on the hydrocarbon sector. The country’s strength is its solid banking system, with a large financial asset base and strong foreign exchange reserves.

Jules Kappeler, Chief Executive Officer (CEO) Euler Hermes Middle East (“the company”), Dubai, commented: “The Vision 2030 roadmap and the National Transformation Plan 2020 are supposed to herald a turning point for the country. This diversification process relies on initiatives to develop weak sectors such as defense industries, retail, renewable energy and the private sector.“

Jules added “Saudi Arabia’s real gross domestic product (GDP) growth dropped to 1.4% in 2016, from 4.1%in 2015 triggered by markedly lower oil prices.”

The fiscal deficit will remain large, forecast at -9% of GDP in 2017, and public debt should further rise to 19% of GDP, said the company.

Looking ahead, Jules said “an improved environment is expected to result in stabilization of GDP growth around +1.5 % in 2017.” In addition “the current account deficit is forecast to narrow to -3.6% of GDP in 2017 from -7% in 2016.

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