Fitch, an American credit rating agency has upgraded Saudi Arabia’s outlook from negative to stable and rated it at ‘A’, citing significantly higher oil prices and the government’s sustained effort to improving its finances.
According to the report, the decision to change the Kingdom’s future outlook was based on expectations of a lower public budget deficit than in its previous report in November, citing Saudi Arabia’s continued commitment to controlling public financial conditions, as well as its eagerness to implement structural reforms and plans to diversify the economy, as well as measures to combat the pandemic.
“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,” Fitch said.
Saudi Arabia’s budget deficit increased to 11.2 percent of GDP last year from 4.5 percent in 2019, according to Fitch. However, due to Saudi fiscal reforms, the widening was less significant than after the 2014-2015 oil price shock.
“Fitch’s revision of the future outlook of Saudi Arabia’s credit rating to a stable outlook confirms the effectiveness of the positive measures and structural reforms taken by the Kingdom during the past five years achieve the objectives of the Kingdom’s Vision 2030. The reform measures positively reflected on the fiscal policy and raised the efficiency of government performance and advanced its comprehensive agenda for economic diversification.”
Fitch also stated that the Kingdom has a current external payment coverage ratio of more than 20 months, which is one of the highest among the sovereign countries classified by the agency.
It also transferred $40 billion from the central bank to the Public Investment Fund, a sovereign wealth fund at the heart of the country’s economic transformation goals. Fitch estimates the Saudi central bank’s reserves to rise to $470 billion in 2022-2023 as the current account switches improve and the Public Investment Fund raises domestic investments.
According to the International Monetary Fund (IMF), the Kingdom’s private sector will lead growth this year, reaching 5.8 percent, and will maintain a 4.8 percent annual growth rate in the medium and long term.