S&P affirms KSA’s credit rating on economic recovery

29 March, 2021 12:00 AM printer

RIYADH: S&P Global Ratings affirmed Saudi Arabia’s “A-/A-2” sovereign credit rating on prospects of a robust economic recovery aided by its strong net asset position and higher crude prices.

The credit rating agency said on Saturday that it expects the Saudi government’s net asset position to remain sufficiently strong over the next two years to support the stable outlook, report agencies.

The kingdom has sizeable fiscal and external net asset buffers that were built up during years of high oil prices.

Saudi Arabia’s real gross domestic product contracted as oil prices fell amid the coronavirus-induced global recession.

However, its economy made a strong recovery in the fourth quarter as it grew by 2.5 per cent, according to official data.

The global economic recovery after Covid-19, higher oil prices caused by rising demand and a wider availability of vaccines worldwide will support the kingdom’s real GDP growth, which was forecast at about 2.3 per cent between 2021 and 2024, S&P said.

The fiscal deficit, which widened to 11.2 per cent of GDP in 2020, is expected to fall steeply to 5 per cent in 2021, before rising to about 6.3 per cent between 2021 and 2024.

Saudi Arabia’s budget deficit is financed by a combination of external and domestic debt and drawdowns from its existing stock of assets. “We expect reserves to cover an average of 17 months of current account payments in 2021 to 2024 as the country maintains a strong net external asset position,” S&P said. It said Saudi Arabia’s current account would return to surplus because of improving global macroeconomic conditions and oil prices as the world begins to emerge from the pandemic.

The current account balance of the Arab world’s biggest economy had a deficit of 2.3 per cent of GDP in 2020, compared with a surplus of 6 per cent in 2019.

In 2021, the credit rating agency expects the current account to revert to a surplus of 4.8 per cent and about 3.8 per cent of GDP between 2021 and 2024. The Opec+ group, led by Saudi Arabia and Russia, has kept a tight lid on output and has been drawing back 7.2 million barrels per day since the year began. The current curbs are set to end in April.

Saudi Arabia, the world’s largest oil exporter, is also contributing an outsize cut of 1 million bpd until the end of next month.

These Opec+ measures and growing demand as the global economy emerges from the pandemic have caused the price of Brent to rise.