Saudi Arabia, the oil rich country, is expanding the state control of the economy by sharply boosting the public spending. This increased expenditure is reportedly stifling the private sector and obstructing diversification plans, according to a key bank in the country. The downward effects on the private sector have also smothered any real rise in the real GDP per capita income in Saudi Arabia.
?The Saudi government?s substantial state spending programme unveiled this year to support its citizens has left a question mark over the matter of whether the country will be successful in promoting diversification away from its predominant reliance on oil by spurring greater private sector activity,? Banque Saudi Fransi (BSF) said in a study.
According to the study, at least a growth rate of six percent is necessary for the private sector to engage adequately in building a more diversified economy and to generate enough jobs. But with the current government spending; the real GDP growth will accelerate only slightly to about 4.2 percent in the private sector.