Moody's Investor Service (Moody's) affirmed the Kingdom's A1 rating with a stable outlook and raised its GDP growth forecasts for the period (2018-2019) to 2.5% and 2.7% respectively, instead of its previous expectations of 1.3% and 1.5% for the same period reported in April this year.
These revised numbers from Moody’s even exceed the forecasts of the government announced in the preliminary statement of the 2019 budget announcement.
Moody's expects higher oil production to boost the economy, but also expects developments in the non-oil sector to contribute to stronger GDP growth. In its recent review, Moody’s noted that plans to diversify the Kingdom's economy away from oil are likely to contribute to the country's medium and long-term growth.
Also, the agency reviewed and adjusted its financial projections for the deficit after the publication of the preliminary statement of the budget announcement for 2019. Moody’s forecasts of the government deficit for the period (2018-2019) are around 3.5% and 3.6% respectively, instead of its previous expectations of 5.8% and 5.2%.
The debt trend will also improve significantly over the next two years as debt is expected to remain below 25% of GDP in the medium term, a small percentage compared to the strong government financial position.
Moody’s commends the Kingdom’s reasonable control of expenditure, even in the face of higher oil revenues. It predicted that the Kingdom's fiscal deficit will decline to around 3.5 percent of the GDP in 2018.
It also praised the Kingdom’s financial management, noting that the volume of expenditure this year is consistent with what was planned in the Saudi government budget. This resulted from government efforts to adjust spending levels throughout the year through proper planning, monitoring, and control, the agency concluded.
On the other hand, Moody’s acknowledged the outstanding results in the collection of non-oil revenues, pointing out that revenues in the first half of this year rose by 43 percent, compared to the same period last year. This results from an increase in average oil prices by around 37 percent and also from tax revenues on goods and services, which proceeds nearly tripled after the introduction of VAT on Jan. 1, 2018.
Regarding the Kingdom’s credit rating, Moody's affirms the stable outlook, which suggests that the risks to the ratings are broadly balanced. The government's reform program, including the plans to balance the fiscal budget by 2023, could over time offer a route back to a higher rating level.
Moody's also added a strong testament to the Kingdom’s credit strength: "In addition to the moderate funding requirements, the government is able to access ample sources of liquidity, from both domestic or international capital markets and financial reserves. It is unlikely to face problems in financing the fiscal deficit."