Monday, 29 November, 2021

Moody’s revises KSA’s outlook to stable on fiscal discipline

RIYADH: Moody’s Investors Service revised Saudi Arabia’s outlook to stable from negative and affirmed its long-term issuer and senior unsecured ratings at A1 on expectations that the government will reverse most of the increase in its debt burden while preserving its fiscal buffers.

The Paris-based ratings agency also affirmed the kingdom’s A1 senior unsecured medium-term note programme ratings, it said in a statement on Saturday. An A1 rating indicates the country is well-placed to meet its debt obligations, report agencies.

Moody’s affirmed the ratings due to “the government’s improving track record of fiscal policy effectiveness, evidenced by policy responses in periods of both low and high oil prices, that consistently demonstrate a commitment to fiscal consolidation and longer-term fiscal sustainability”, the credit rating agency said.

The expected fiscal improvement over the next several years will be helped by higher oil prices, although the stable outlook takes into account the expectation that oil prices will remain volatile, Moody’s said.

Economic output in the kingdom, Opec’s biggest producer and the world’s largest exporter of crude, is expected to grow by 2.4 per cent this year and by 4.8 per cent in 2022, the International Monetary Fund said in June. The growth will be buttressed by a strong rebound in the kingdom’s non-oil sector and investment from its sovereign wealth fund, the Public Investment Fund.

Oil-exporting countries will have large surpluses in 2021 and 2022 as higher crude prices lead to more revenues for many producers, the Institute of International Finance said in a report on November 4.

Saudi Arabia recorded a budget surplus – its first since 2019 – during the third quarter of this year as higher crude oil prices improved its finances, according to a report by the kingdom’s Ministry of Finance. The Arab world’s biggest economy posted a surplus of 6.7 billion Saudi riyals ($1.8bn) while it earned revenues of 243.3bn riyals during the period. Oil revenues soared 60 per cent annually to 147.9bn riyals, the ministry said.

Moody’s said Saudi Arabia’s fiscal deficit will narrow sharply in 2021 to less than 2.5 per cent of gross domestic product from 11.2 per cent of GDP in 2020 and will remain close to balance in the next several years.

Consequently, the kingdom’s debt burden will decline below 29 per cent of GDP at the end of this year and to around 25 per cent of GDP by 2025 from 32.5 per cent of GDP in 2020, thereby reversing most of the pandemic-induced impact on the government’s balance sheet, the ratings agency said.