American credit rating agency, Standard & Poors (S&P) has upgraded Saudi Arabia’s outlook to ‘positive’ from ‘stable’ citing improving GDP growth and fiscal dynamics over the medium term. The credit rating agency also affirmed the country’s rating at ‘A-/A-2’.
Saudi Arabia’s GDP rose by 3.3 percent in 2021, according to official statistics released last week, a turn from the 4.1 percent contraction in 2020, when oil crashed and economies across the world were hammered by the pandemic.
Last year, oil prices leaped 50 percent as demand recovered, and then surged above $100 a barrel to 14-year highs in February after Russia invaded Ukraine, leading Western nations to urge major producers to increase output.
Demand for Saudi crude oil has been further underpinned by demand as some countries attempt to reduce imports from Russia, S&P said.
“The positive outlook reflects our expectation of improving GDP growth and fiscal dynamics over the medium term, tied to the country’s emergence from the COVID-19 pandemic, improved oil sector prospects, and the government’s reform programs,” S&P said.
The rating agency in its report forecast Saudi real GDP growth for the current year to rise to 5.8 percent and average 2.7 percent from 2023 to 2025.
“Higher global oil prices and rising production volumes, alongside a recovery from the COVID-19 pandemic, are supporting Saudi Arabia’s fiscal and GDP growth dynamics,” S&P said.
The International Monetary Fund (IMF) estimates Saudi Arabia needs oil at $72.40 per barrel to balance its budget this year, way lower than current levels.
“In 2020, Saudi Arabia was hit hard by the twin shocks of the pandemic and lower global oil prices and demand, but since 2021, the country’s economy has rebounded as the wider global economy has recovered from the pandemic, and oil demand and prices have improved,” as per S&P.