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Rating Agencies Raise Saudi Economy Rating with Positive Outlook

Rating Agencies Raise Saudi Economy Rating with Positive Outlook

Sunday, 19 March, 2023 - 10:15
The Saudi economy is witnessing the reflection of structural reforms and the emergence of the non-oil sector in sustaining economic diversification. (AFP)

Rating agencies have upgraded the Saudi economy to a “positive” and stable outlook.

They affirmed that the structural reforms have been reflected in the tangible progress in economic development and the support of diversification policies, especially in the non-oil sector.

S&P Global Ratings upgraded its credit report for Saudi Arabia, raising its long and short-term foreign and local currency sovereign credit ratings to 'A/A-1' with a stable outlook, according to its recent report.

The agency indicated in its report that this rating upgrade is a result of the Kingdom's significant reforms efforts in recent years and its realization of structural improvements that contributed to supporting a sustained development of the non-oil sector, in addition to improving public finance management and maintaining a balanced public debt level.

The agency highlighted the strong real GDP growth of 8.7 percent in 2022, the highest among the G-20 economies. It expects moderate economic growth, averaging 2.6 percent in 2023-2026 with GDP/capita averaging $31,500 (significantly above pre-pandemic levels).

The agency forecasts the non-oil sector to remain strong through 2026 due to service sector growth supported by significant ongoing social reforms and female workforce participation.

It also expected the continuity of fiscal surpluses through 2024 (after reaching 2.5 percent of GDP in 2022).

The report indicated that inflation in the Kingdom is relatively low compared to its peers. It is expected that it will remain under control thanks to the government efforts in subsidizing fuel and food, as well as the currency peg to the US dollar.

Rating agency Moody's changed its outlook on the Kingdom to "positive" from "stable" and reaffirmed its "A1" rating.

The rating is based on Moody’s assessment of the government’s track record of fiscal policy effectiveness and the comprehensive regulatory and economic reforms that will support the sustainability of the economic diversification efforts over the medium and long term.

These include the reforms and investments in various non-hydrocarbon sectors that will reduce the Kingdom’s reliance on hydrocarbons over time.

The agency also lauded the important role of the government-sponsored diversification projects and initiatives, supported by private sector investment, and their positive impact on economic growth and improved outlook rating.

Moody’s report is a validation of the Kingdom’s fiscal policies as part of its Vision 2030 programs, and keeping debt at a moderate level, which is lower than most similarly rated sovereign debts, offering robust fiscal buffers and a competitive position in the global energy market.

Saudi Arabia posted a budget surplus of 103.9 billion riyals ($27.68 billion) in 2022 for the first time in a decade, the finance ministry said at the beginning of March.

Saudi Arabia’s revenues in 2022 reached 1.27 trillion riyals ($338 billion), an increase of 31 percent compared to 2021, according to the data released by the ministry.

Saudi Minister of Finance Mohammed Al-Jadaan explained last week during the Financial Sector Conference that the Kingdom has strong economic and financial foundations, with an average inflation rate of 2.5 percent in 2022. This figure is one of the lowest among G20 countries.

In addition, non-oil revenues reached 35 percent of expenditures in 2022.

GDP growth in 2022 was supported by healthy growth in non-oil GDP, which amounted to 5.4 percent, the minister added.

“The Female participation rate in the labor market is now 37 percent. Consumption is strong and home ownership has grown to a record 62 percent,” he said.

Al-Jadaan said that the Saudi Privatization Program has a pipeline of over 200 projects in 17 targeted sectors, creating tremendous opportunities for investors.

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