The international credit rating agency ”Fitch” updated its credit report for Saudi Arabia affirming its “A” rating for the Kingdom and revising the stable outlook from its July 2021 rating to positive.
The outlook revision reflects the Kingdom’s improvement in its sovereign balance sheet due to higher oil revenues resulting from higher oil prices, the commitment to fiscal consolidation, and the implementation of various diversification plans, the agency said.
Fitch also forecasts the government debt to GDP to remain below 30% until 2025, which is approximately half the median level of comparative countries with similar credit ratings. Additionally, the Kingdom of Saudi Arabia will maintain its large financial reserves during the coming period, including buffers in the Central Bank, which exceed 10 percent of GDP.
In its report, the agency expected the continuation of positive growth in the Saudi economy and budget surpluses for the years 2022 and 2023 – equivalent to 6.7 percent and 3.5 percent of GDP, respectively – for the first time since 2013. This is a result of the recent oil price recovery, and the agencies revised forecasts for the current year.
Despite the rise in oil prices, the agency also expected that spending control will broadly persist given the uncertainty in oil prices over the long term.
Fitch stated that the Kingdom has committed to a robust budget to cope with oil price fluctuations and accommodate higher public sector spending to support economic growth and job creation, in line with its Financial Sustainability Program.
The agency also indicated that the increase in off-budget spending by the Public Investment Fund and the National Development Fund allowed for less budget spending during the previous period, with capital spending declining to 5 percent of GDP, compared to 11 percent of GDP in 2014.
The agency highlighted that the average non-oil revenue is expected to reach around 19 percent of non-oil GDP in 2022 and 2023, more than double the level in 2015. Fitch also expected the stability of non-oil revenues in nominal terms for 2022.
The agency also stated that the Kingdom is pressing ahead with its National Investment Strategy, which is expected to play a role in revenue growth in the form of non-oil GDP growth, the increase of job opportunities outside the central government, and the reduction of the current national unemployment rate (11 percent).
The agency noted that the National Investment Strategy aims to create domestic investment opportunities valued at 12 trillion Saudi riyals (nearly four times the GDP of 2021) by 2030, supported by the Public Investment Fund and the National Development Fund, in addition to Saudi Aramco and non-governmental investors participation in the strategy.
Fitch’s outlook revision makes Saudi Arabia one of the few countries globally, and the only G20 country, to have received two consecutive upward outlook revisions from the beginning of 2022.