Saudi Arabia's economy is expected to grow at 2 to 2.5 per cent per annnum over the next five years, according to report by Moody's Investors Service.

The (A1 stable) credit strengths include a robust but deteriorating fiscal position, substantial external liquidity buffers, large oil reserves with low extraction costs, and prudent financial system regulation, stated the top ratings agency in a report today.

The government's balance sheet remains strong, despite the decline in oil prices since 2014 that has pushed the budget balance into deficit, eroded government reserves and prompted large issuance of debt, it stated.

"Saudi Arabia's credit challenges include its economic and fiscal exposures to oil price volatility, and socio-economic issues posed by strong population growth and elevated unemployment," remarked Alexander Perjessy, a Moody's Vice President - Senior Analyst and the report's author.

"Although the government has made some progress on ambitious and comprehensive reform plans, their implementation will be challenging and their positive impact will only be felt over the longer term," explained Perjessy.

"Over the next five years, Moody's expects that Saudi Arabia's economy will grow at a rate of 2%-2.5% per year. This is markedly lower than the 4.6% growth rate recorded during 2011-16. However, progress on the government's plans to diversify Saudi Arabia's economy away from oil could lift the country's longer-term growth potential," he added.

The country's very high fiscal strength stems from the government's large financial buffers, relatively low but rising debt levels, and high debt affordability, said the ratings agency in its report.

According to Moody's, the stable outlook on the sovereign rating reflects the ratings agency's view that risks to Saudi Arabia's credit profile are broadly balanced.

Positive developments could stem from the implementation of reforms that enhance competitiveness and private-sector employment while moving the budget towards balance, independent of fluctuations in oil prices, it stated.

Moody's, however, cautioned that pressure on the rating could stem from a material slowing or a reversal of fiscal consolidation.

Increased geopolitical and domestic political risks that would jeopardize reform progress or rising evidence that reform efforts are likely to fall substantially short of meeting the government's economic and fiscal objectives would also be negative for Saudi Arabia's credit profile, it added.-TradeArabia News Service