S&P Global Ratings Shows Saudi Arabia is Anticipating Fiscal Surpluses and Reiterates Its Steady Outlook

S&P Global Ratings affirmed Saudi Arabia's credit rating at "A-/A-1" with a stable outlook, projecting a return to fiscal surpluses in 2024 driven by increased crude production and growth in the non-oil sector.

The rating signifies Saudi Arabia's robust ability to meet its financial obligations.

The agency attributed the positive outlook to recent reforms focused on stimulating non-oil economic growth, expanding the non-oil tax base, and substantial social liberalization, expecting these efforts to enhance the country's economic and fiscal standing.

Saudi Arabia's economy showed a growth of 1.2% in the second quarter of this year, slightly surpassing initial estimates.

The expansion was propelled by a significant surge in the non-oil sector, contributing to the Arab world's largest economy.

Related: How the Non-Oil Sector Drove Saudi Arabia's 1.2% Q2 GDP Growth

The kingdom's gross domestic product reached 970 billion riyals ($258.66 billion) in the three months ending June, as reported by the General Authority for Statistics.

Notably, the non-oil sector witnessed a remarkable 6.1% annual growth, outpacing the initial estimate of 5.5% for the three-month period according to Gastat.

Saudi Arabia, the largest oil producer in OPEC, has announced an extension of its voluntary 1 million barrels per day output cut until the end of 2023.

This decision is anticipated to have a negative impact on the country's real GDP growth and fiscal deficit for the year.

The International Monetary Fund had earlier downgraded Saudi Arabia's economic growth forecast, attributing it to significant cuts in oil production and lower oil prices.

The kingdom's economy is now projected to grow by 1.9% this year instead of the previously estimated 3.1%.

However, a rebound in growth is expected from 2024 onward with a growth rate of 2.8% projected for that year, according to the IMF's World Economic Outlook update.

Saudi Arabia's inflation rate is expected to stay low compared to its peers, thanks to supply-side subsidies on fuel and food, as well as its peg to the robust US dollar.

In the years 2023-2026, the non-oil sector is anticipated to remain robust, driven by strong growth in the service sector, increasing consumer demand, ongoing social liberalization, and a growing female workforce.

The kingdom will further reap the rewards of substantial investment projects, mainly financed by the Public Investment Fund and the National Development Fund.

Source: John Benny, The National