Balance of Payment for Saudi Arabia

About the Economy of Saudi Arabia

Production and export of oil is the major economic activity in Saudi Arabia. The population of the country is 28.2 million while the unemployment rate is 10.9%. The inflation rate for the country stands at 5.0%. The government heavily relies on fiscal policies to stimulate the economy. There is also use of monetary policies. This focuses on ensuring that the interest rates at low levels. The nominal GDP of the country has been growing over the years. However, during the recession, the country recorded decline in GDP (The Heritage Foundation 2013). The table below summarizes the nominal GDP of Saudi Arabia for eight years.

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Table 1.0 – GDP of Saudi Arabia

2005 2006 2007 2008 2009 2010 2011 2012
Nominal GDP ($ billion) 366.6 413.9 447.0 553.3 437.7 526.8 669.5 727.3
% change 12.9 8.0 23.8 -20.9 20.4 27.1 8.6

The GDP of Saudi Arabia has increased since 2005. However, in 2009, the GDP of the country declined. This was attributed to the global recession that resulted in the reduction of the price of oil. Further, the global recession affected the exchange rate thus resulting in a 20.9% decline in 2009. After 2009, the GDP has been increasing. The graph below shows the trend of GDP.

Nominal GDP

External trade indicators

The table below summarizes the statistics for trade balance, current balance, and capital account balance for eight years.

Table 1.1 – external trade indicators statistics

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$ billion 2005 2006 2007 2008 2009 2010 2011 2012
Total export revenue 188.30 210.9 233.1 313.4 192.2 251.0 364.6 396.0
Import 56.2 63.0 81.5 100.6 86.4 96.7 119.1 128.0
Trade balance 131.96 147.8 151.6 212.7 105.8 154.3 245.5 268.0
Current account balance 95.6 98.9 93.3 132.3 21.0 66.8 158.5 178.5
Capital account balance -83.49 -80.58 -68.97 -92.84 15.46 -45.24 -131.1 -148.7
Balance of payment 12.11 18.32 24.33 39.46 36.46 21.56 27.4 29.8
Official foreign assets 242.2 273.4 359.8 502 474.2 520.3 621.5 643.3

Trade balance

Trade balance is the difference between net exports and net import for a country. A trade balance can either be a trade surplus or a trade deficit. From the statistics, it is evident that the Kingdom has a trade surplus for all the eight years. However, a sharp decline was experienced 2009. This was mainly attributed to the global recession. The balance of trade is a key component of the current account balance. A trade surplus increases the amount of current account balance. The graph below shows the trend of the trade balance account.

Trade balance

Current account balance

A current account balance is a key element of balance of payment (BOP). Trade balance, net income from broad, and transfers are the key components of the current account balance (Parkin 2007). From the table 1.1 above, Saudi Arabia reported a positive current account surplus throughout the eight years. The values have increased through the years. This can be attributed to increase in the trade balance. The current account balance took the same trend as trade balance. A current account surplus increases the net foreign assets. The graph below shows the trend of the current account balance for the eight years.

Current account balance

Capital account balance

The capital account balance shows the net changes in the assets of the Kingdom. The capital account is made up of foreign direct investment, portfolio investment, other investments, and reserves. A surplus in the capital account implies that money is flowing into the country. This could result from a sale of foreign assets or loans. In most economies, the value of the capital account balance is negative (Mankiw 2011). As seen in table 1.1, the capital account has been increasing in absolute values over the years apart from the period of recession.

Balance of payment

The balance of payment account captures the transactions of a country with those of the rest of the universe. The sum of capital account balance and the current account balance makes up the balance of payment for Saudi Arabia (Mankiw 2011). The country had a surplus in the balance of payment. The graph below shows the trend of balance of payment in Saudi Arabia.

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Balance of payment

Relationship between current account, savings and investments

The table below summarizes the statistics for current account, savings, investment, and government budget surplus for eight years.

Table 1.2 – budget balance, savings and investment

$ billion 2005 2006 2007 2008 2009 2010 2011 2012
Current account balance 95.6 98.9 93.3 132.3 21.0 66.8 158.5 178.5
Budget balance 69.7 74.6 47.2 154.9 -23.2 23.4 77.5 102.9
Savings 153 170 175 240 117 169 269 279
Investment 66.8 77.5 91.8 126.0 111.8 119.1 141.0 153.8

From the table above, it is evident that as the current account balance increases, the government budget, savings and investments also increase. As the current account balance decreases, as in the case of 2009, all the other three variables decreases. Thus, the current account balance has a direct effect on the other three accounts as shown in the graph below.

Indicators

References

International Monetary Fund 2013, Saudi Arabia: total investment, percentage of GDP, Web.

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Mankiw, G 2011, Principles of Economics, Cengage Learning, USA.

Parkin, M 2007, Economics, Pearson Addison-Wesley, United States.

The Heritage Foundation, 2013 index of Economic freedom, Web.

The World Bank data 2013, Savings – Saudi Arabia, Web.

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