RIYADH: Fitch Ratings affirmed Saudi Arabia’s ‘A’ sovereign rating and revised its outlook for the kingdom to “stable” from “negative”, attributing the revision to significantly higher oil prices and the government’s continued commitment to fiscal reforms.
In addition, the government will retain significant fiscal buffers, such as deposits at the central bank in excess of 10 per cent of the economic output, Fitch said, report agencies.
The Arab world’s biggest economy is forecast to grow 2.4 per cent this year and 4.8 per cent in 2022, driven by a strong rebound in the kingdom’s non-oil sector and investment from its sovereign wealth fund, the Public Investment Fund (PIF), according to the International Monetary Fund.
Saudi Arabia’s budget deficit is expected to narrow to 3.3 per cent of the gross domestic product in 2021, better than the 4.9 per cent target of the government budget, assuming Brent prices average $63 per barrel this year, Fitch said.
A full year of the higher VAT rate will support non-oil revenue, according to the ratings agency. Saudi Arabia had increased its VAT rate to 15 per cent, from 5 per cent, in July 2020.
While Saudi Arabia’s fiscal policy has tended to be pro-cyclical with oil prices, budget spending is expected to remain better anchored to fiscal plans in 2021 given the uncertain medium-term oil price outlook, the government’s aim to improve the kingdom’s fiscal structure and increasing public-sector spending outside the budget, Fitch said.
The ratings agency also expects the central bank’s reserves to increase towards $470 billion in 2022 and 2023 as the current account returns to surplus and as public institutions and enterprises, notably the PIF, invest less abroad and more domestically.
Saudi Arabia’s real non-oil GDP growth is projected to average 3 per cent in 2021 to 2023, the ratings agency said. The IMF forecasts the kingdom’s non-oil economy to grow 4.3 per cent this year.