Arab News, Saturday, Jul 17, 2021 | Zul Hijjah 7, 1442
Fitch lifts Saudi outlook to stable on higher oil prices, improved state finance
Ratings agency Fitch on Thursday revised its outlook for
Saudi Arabia to stable from negative, citing rising oil prices and the
government’s continuing efforts to adjust its finances. Fitch maintained the
Kingdom’s sovereign rating at “A.”
“The outlook revision reflects prospects for a smaller deterioration in key
sovereign balance-sheet metrics than at the time of the previous review, owing
to significantly higher oil prices and continued government commitment to fiscal
consolidation,” the agency said.
Saudi Arabia, the world’s largest oil exporter, was hit last year by the twin
shocks of the COVID-19 pandemic and record-low oil prices. However a rebound in
demand for crude and the easing of coronavirus restrictions have helped to lift
the economy in recent months.
Most of the improvement in oil prices came as Saudi Arabia worked with Russia
and other allied producers to balance the market through voluntary cuts in
production. The alliance, known as OPEC+, is in discussions to extend this
agreement until the end of 2022.
The speed of recovery in the Saudi economy was evident in the first quarter of
2021, as real non-oil output grew by 2.9 percent and the private sector recorded
growth of 4.4 percent, Fahad Al-Mubarak, governor of Saudi Central Bank, said on
Wednesday. Private final consumer spending rose by 1.3 percent.
Mazen al-Sudairi, the head of research at Al Rajhi Capital, told Arab News that
with government reforms helping to support economic recovery in the Kingdom at a
time when other economies worldwide are still suffering as a result of the
pandemic, the improved Fitch rating was not a surprise.
“With the non-oil economy continuing to grow and the budget deficit falling on
the back of higher oil prices, ratings agencies are expected to positively
change their outlook,” he added.
Saudi Arabia’s budget deficit jumped to 11.2 percent of gross domestic product
(GDP) last year, from 4.5 percent in 2019, but Fitch said the increase was less
pronounced than the one that followed the 2014-2015 oil-price shock, due to
Saudi fiscal reforms.
The Kingdom last year introduced a range of austerity measures, including the
tripling of the value-added tax rate and the withdrawal of a cost-of-living
It also transferred $40 billion from the central bank to the Public Investment
Fund (PIF), the sovereign wealth fund at the center of plans to transform the
Saudi economy, to spur investment.
Assuming Brent prices average $63 a barrel this year, Fitch forecasts the
Kingdom’s budget deficit will narrow to 3.3 percent of GDP this year, an
improvement on the 4.9 percent deficit projected by the government.
Net foreign assets at the central bank recently dropped to about $433 billion,
their lowest level in more than a decade. Fitch expects reserves at the Saudi
central bank to increase to $470 billion in 2022-2023 as the current account
switches to a surplus and PIF increases domestic investments.