S&P Global, Moody’s raise Saudi Arabia rating on reform agenda

S&P Global has revised upwards its sovereign rating on Saudi Arabia to “A/A-1”, citing significant reform momentum in recent years and the Gulf state’s economic diversification strategy to advance the development of the non-oil sector and shift dependence away from oil revenues.

“S&P Global Ratings” Raises its Credit Rating of Saudi Arabia to A/A-1 with Stable Outlookhttps://t.co/0RrDHfrjZQ#SPAGOV

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“Saudi Arabia’s significant reform momentum in recent years has begun to deliver structural improvements to its economy and fiscal and debt management,” said S&P Global in a statement. The rating agency said it may upgrade Saudi Arabia over the next two years if “we observe further progress on institutional reforms”, including strong per capita economic growth and fiscal consolidation.

Moody’s also raised its outlook on the kingdom to positive, saying the structural reforms that are being implemented will reduce the country’s reliance on oil and gas revenues and its exposure to crude cycles. The rating agency reaffirmed its “A1” rating on Saudi Arabia.

Fitch Ratings, one of the big three rating agencies, assigns the kingdom the same score as S&P Global while Moody’s has it one level higher.

Saudi Arabia’s GDP expanded by 8.7 per cent in 2022, the highest among G20 countries, as the kingdom’s non-oil sector and positive developments in the hydrocarbon market helped the Arab world’s biggest economy to evade the global slowdown.

Read: Saudi Arabia’s 2022 GDP grows 8.7 per cent, boosted by higher oil prices

S&P Global said Saudi Arabia’s economy will continue to benefit from the country’s leading role as the largest individual oil exporter globally.

While soaring commodity prices have put importers under pressure and raised the threat of longer-lasting inflation, a rally in crude oil prices has pushed Saudi Arabia’s budget into the black for the first time since 2013. The International Monetary Fund urged Saudi Arabia to manage oil revenues sustainably to promote fiscal sustainability and prevent a return to previous oil-driven cycles of boom and bust.

Despite the impact of the war in Ukraine on global food and fuel prices, inflation in Saudi Arabia has remained largely under control owing to supply-side price caps and the peg to the relatively strong dollar.

S&P Global projected that inflation will stand at 2.9 per cent in 2023 and average about 2 per cent in 2024/26. Inflation in Saudi Arabia remains well below peers, having averaged just about 2.5 per cent in 2022, led by a rise in the cost of education, hotels and food.

Saudi Arabia’s Vision 2030

Meanwhile, the current oil and gas price outlook is creating an ideal environment for Saudi Arabia to proceed with ambitious reforms under favourable macroeconomic and financing conditions while putting debt on a firm downward path.

The kingdom’s latest fiscal outlook, unveiled in January, showed that the Gulf state is expecting to run a surplus of $4.3bn (SAR16bn) in 2023 while the economy is forecasted to expand by 3.1 per cent.

S&P Global projected that the government will continue to pursue its ambitious Vision 2030 economic diversification program as the country’s “non-oil private sector now accounts for well over half of GDP, significantly higher than a decade ago”.

Saudi Arabia’s $620bn sovereign wealth fund, once a sleepy government holding company, is central to the country’s global ambitions under Vision 2030. The Public Investment Fund (PIF) is tasked with stimulating inward investment, accessing new technologies, developing local industries and addressing widespread underemployment in the country.

PIF is funding a host of new cities in the desert under Vision 2030 including the $500bn futuristic NEOM City, the Red Sea Development Company’s mega tourism project and the Qiddiya entertainment park.

Saudi Arabia is implementing trillions of dollars worth of investments in its non-oil economy sector to drive sustainable growth post-pandemic. The government is encouraging the country’s biggest listed firms to increase investments into the local economy to a substantial SAR5tn by 2030 via the ‘Shareek’ program.

Earlier in March, Saudi Arabia launched SAR192bn of investments led by local firms including Aramco, SABIC, stc Group and Ma’aden.

Read: Aramco, ACWA Power, SABIC to receive support from Saudi’s Shareek programme