Updated Political and Economic forecasts for Egypt and Saudi Arabia

The Economist Intelligence Unit's updated forecasts for Egypt and Saudi Arabia.


Country Forecasts

Saudi Arabia

The Economist Intelligence Unit expects the king, Abdullah bin Abdel-Aziz al-Saud, to continue to seek to consolidate his authority by balancing the accommodation of rival members of the Al Saud with the advancement of family allies where possible. This necessarily collegiate style of government, not least given the vested interests at stake, will constrain the pace of political and economic reform. A concerted strategy to overcome the political and economic roots of opposition is not expected to materialise over the forecast period, although cautious, piecemeal political changes, such as the introduction of an elected component to regional government, are likely. Dissatisfaction with the rule of the Al Saud will persist, and periodic attacks by Islamist hardliners on Western and other targets, despite the efforts of the security forces, are likely. Driven by high oil prices and rising production, economic growth will stay strong in 2006 and 2007, as oil revenue, though declining, will remain firm. The kingdom will also generate large, trade-driven current-account surpluses. Inflation will remain low and there will be no pressure on the riyal’s peg to the US dollar.

Egypt

The election of the Egyptian president, Hosni Mubarak, to a fifth six-year term in office in the country’s first direct presidential election in September was widely anticipated. However, hope among activists that multi-candidate elections would mark the start of a process of deeper political reform has faded, as the rules introduced to govern the election turned out to be highly restrictive. Failure to advance liberalisation in a meaningful way will prompt greater frustration among activists and criticism from the US, which has pressed for greater political pluralism in Egypt. Pressure for reform on either front is unlikely to prove overwhelming. However, there is a risk over the longer term that should the government fail to reverse the recent slide in living standards, the Muslim Brotherhood may seek to exploit popular disaffection to pressurise the government. The economically liberal cabinet, appointed in mid-2004, which inherited a number of testing economic challenges, has embarked on reform with vigour, slashing customs duties and income taxes. Crucially, the president has so far identified himself closely with economic reform. However, controversial measures such as privatisation and lowering subsidies will prove a sterner test of the president’s resolve. Consequently, the fiscal account will continue to record large deficits in 2006-07. The current account will register solid surpluses.