Saudi Arabia's economy is expected to grow at an average rate of around 3% during 2021-24, nearly double the average during 2015-19 (1.6%) but lower than the 4.1% growth rate recorded during 2005-14, Moody's Investors Service said in an annual report today.

 

Moody’s expects real GDP to decline by 4.5% in 2020 as a result of the dual shock triggered by the coronavirus pandemic.

 

The shock to the business and consumer activity in the non-oil sector, stemming from the restrictions out in place by the government to control the spread of the pandemic, will contribute to the non-oil GDP contraction of around 4% of GDP after relatively strong non-oil growth of 3.3% in 2019.

 

Moody’s expects higher fiscal deficits in the next few years will increase government debt above 35% of GDP from 22.8% at the end of 2019.

 

Saudi Arabia's credit strengths include a robust but deteriorating government balance sheet,

underpinned by still-moderate debt levels and substantial fiscal and foreign currency buffers,

Moody's Investors Service said in an annual report today. 

 

A large stock of proved hydrocarbon reserves with low extraction costs and prudent financial system regulation also support the sovereign credit profile.

 

“The Saudi government has made some initial progress in its ambitious and comprehensive reform

plans to diversify fiscal revenue streams and the economy away from hydrocarbons,” said Alexander

Perjessy, a Moody's Vice President - Senior Analyst. “However, their full implementation will be

challenging and their positive impact will only be felt over the longer term.”

 

Saudi Arabia's credit challenges include its economic and fiscal exposures to declines in global

oil demand and prices, such as those in 2020, and socio-economic challenges posed by rapid

population growth and elevated unemployment. Geopolitical risk also weighs on the credit profile,

driven by regional security threats and tensions with Iran.

 

The negative outlook reflects increased risks to fiscal strength stemming from the shock to global oil demand and prices triggered by the coronavirus pandemic and uncertainty regarding the degree to

which the government will be able to offset its oil revenue losses and stabilise its debt burden and

assets in the medium-term, said the report.

 

Evidence that the government is able to contain the deterioration in its balance sheet and stabilise

and ultimately reverse the debt trajectory through implementation of additional fiscal consolidation

measures, possibly supported by a faster recovery in oil prices, would likely lead to the outlook being stabilised, it said.

 

The increasing likelihood of a materially larger fiscal deterioration – with a markedly faster rise in the government’s debt burden or erosion of reserve buffers than in Moody's baseline scenario - would likely put downward pressure on the rating, the report said. - TradeArabia News Service