Oil market developments are a key risk for these forecasts, in either direction. Saudi Arabia's external finances remain formidable despite deterioration in recent years. We forecast SAMA reserves to increase towards USD billion in as the current account returns to surplus and as public institutions and enterprises, notably the PIF, invest less abroad and more domestically.
Saudi Arabia has one of the highest reserve coverage ratios among Fitch-rated sovereigns at more than 20 months of current external payments. A shift in the focus of public-sector spending outside the budget and the potential for higher debt of state-owned and government-related entities GREs presents an important risk to the sovereign's balance-sheet strengths, in Fitch's view.
Announced plans for domestic investment by the PIF, Aramco and other entities are large and lack clarity in terms of actual likely outlays, financing and the investment framework. This is still moderate given the public sector's large role in the economy, and many GREs remain unlevered compared with international peers. However, a large step-up in GRE debt could undermine the assessment of the Kingdom's public finance strengths, depending also on the productivity of those investments, and worsen the country's net external creditor position.
The investment drive that is central to Vision is intended to boost non-oil economic activity and create jobs. Unemployment among Saudis has moderated since 2Q20, but remains high at More secular Saudi intellectuals and youth are already sending letters and petitions, and calling for more rapid reform. At the same time, there are good reasons to hope that Saudi Arabia will continue on the path to peaceful reform and change.
A small, highly vocal minority does not speak for a nation, and Saudi stability may well prove to be strong enough so that the end result is to aid reform rather than threaten the regime. Every crisis in the Middle East since the time of Nasser has led to a new round of speculation about Saudi Arabia and the future of the monarchy. Yet, it has now been more than half a century since that speculation began and Saudi Arabia has not changed its regime As other countries in the region have shown all too clearly, a history of stability is no guarantee for the future, but it is important to note that Saudi stability has been the product of the fact that its government has dealt with each wave of change by making the reforms that are critical to maintaining popular support.
The current King — King Abdullah bin Abdul Aziz -- may be in his late 80s, he led a government that consistently pursued policies that made him a symbol of social, economic, and educational reform to many Saudis but long before the current crisis. At the same time, he has dealt with the fact that the Saudi population and clergy are deeply committed to a puritanical form of Islam and resist social change when it seems to come into conflict with traditional religious and social practices, and that Saudi society is driven by its internal values and demands that are very different those of Western secularism.
It is striking that when this new wave of crises began, King Abdullah did not react with a wave of new security measures. The Saudi government has announced that these investments include:. At the same time, they are not some sudden rush to invest in jobs, housing, medical services, and education.
They reflect half a century of Saudi government investment in precisely the priorities that drove the core demands of the protesters in Egypt and Tunisia and the focus of social justice that has been the key to most of the current unrest in the Middle East.
History scarcely means we can take Saudi stability for granted. Saudi Arabia is simply too critical to US strategic interests and the world. Saudi petroleum exports play a critical role in the stability and growth of a steadily more global economy, and the latest projections by the Department of Energy do not project any major reductions in the direct level of US dependence on oil imports through It is the key to the efforts of the Gulf Cooperation Council to create local defenses, and for US strategic cooperation with the Southern Gulf states.
It plays a critical role as a counterbalance to a radical and more aggressive Iran, it is the source of the Arab League plan for a peace with Israel, and it has become a key partner in the war on terrorism. No one can ignore the fact that Saudi leaders face many challenges that might explode into popular unrest if they are not handled with great skill. They have to try to retain power and popular support while constantly adjusting their actions to find the right balance between modernization and social progress and the desires of a very conservative population.
They have to seek the best balance between those who focus on secular needs and call for rapid change, and religious leaders whose primary focus is to preserve the values of a puritanical form of Islam. Finding this balance means the monarchy, and Saudi elites and technocrats, must work within a political system and culture few Americans understand, and one that is hard to put in perspective.
The Saudi monarchy is scarcely the representative democracy Americans are familiar with. Its limited experiments with a carefully selected national assembly or Majlis, and representative local government, have moved slowly and been very limited. Are government responses to rising pressures indicative of an impending change or a sign of state strength?
August 15, Please join our discussion by sharing your own views in the comments section. Stable for Now F. Gregory Gause Ironically, questions about Saudi stability tend to arise after the Saudi regime has recently demonstrated its resiliency in the face of regional crisis.
Oil, Jobs, and Long Term Stability Steffen Hertog In the long run, Saudi Arabia will have to undergo a painful shift away from both public sector over-employment and dependence on migrant labor. Looming Political Shift Christopher Davidson Large, youthful populations are signalling their discontent with opaque authoritarian politics and the mismanagement of national resources. More on: Gulf Countries Saudi Arabia.
Related analysis from Carnegie Keeping an Eye on Baghdad. Subscribe for our daily curated newsletter to receive the latest exclusive Reuters coverage delivered to your inbox. More from Reuters.
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