Macroeconomic factors influencing the Saudi balance of payments’ current account dynamics from 1995 to 2019

Abstract

Reliable development reports highlight persistent deficits in developing countries’ balance of payments since the 1980s and 1990s, attributed to monetary turmoil and ambitious development plans. Saudi Arabia faces similar challenges as the leading economy in the Middle East and North Africa region.The objective of this study is to pinpoint the macroeconomic determinants influencing Saudi Arabia’s current account balance from 1995 to 2019. This aligns with the objectives of Saudi Vision 2030, which emphasizes economic diversification and sustainability.Eleven macroeconomic determinants were subjected to the Principal Component Analysis model and the Autoregressive Distributed Lag model for analysis. Five determinants, such as budget balance, goods exports, per capita gross domestic product, gross domestic product growth, and domestic liquidity growth, were identified as significant contributors to the current account balance. The Autoregressive Distributed Lag model revealed that goods exports, domestic liquidity growth, gross domestic product growth, and per capita gross domestic product exert a statistically significant positive impact on the current account balance in the long term.The research findings highlight the significance of goods exports, economic growth, and domestic liquidity in shaping Saudi Arabia’s current account balance, emphasizing the need for diversification away from oil dependence to mitigate economic vulnerabilities. The study underscores the implications for Saudi Vision 2030, stressing strategic policy interventions to foster non-oil exports and stimulate economic growth. Additionally, the analysis identifies temporal variations in export dynamics, emphasizing the importance of policy continuity and adaptability for economic resilience. AcknowledgmentsThe authors gratefully acknowledge financial support from The Deanship of Scientific Research, King Faisal University (KFU) in Saudi Arabia. The present work was done under Project Number (CHAIR 138).