Saudi Arabia’s strong financial position is result of astute policies

The Kingdom is well on its way to economic recovery — as is evident from different reports from independent sources. Most recently Moody’s changed Saudi Arabia’s outlook from negative to stable.

The credit ratings agency also affirmed its long-term issuer and senior unsecured debt ratings at A1.

This strong credit rating and outlook have increased the likelihood of the Saudi government reversing most of the debt burden it accumulated during 2020 within the next few years without compromising on its fiscal buffers.

The improved track record of the Saudi government’s effective fiscal policy has led to such a high rating. The policy kept the Kingdom’s economy moving forward in periods of both low and high oil prices.

The astute policy supported the government’s effort to ensure fiscal consolidation and longer-term fiscal sustainability.

It is worth noting that the stable future outlook indicates the strength of the financial position and net reserve of external assets of the Kingdom

Talat Zaki Hafiz

Moody’s expects Saudi Arabia’s fiscal deficit to narrow sharply in 2021 to less than 2.5 percent of gross domestic product from 11.2 percent of the GDP in 2020, and expenditures will reduce during this year and the next year by about 6 percent in 2021 and another 6 percent in 2022.

The government’s debt burden will decline below 29 percent of the GDP at the end of this year and further to about 25 percent of the GDP by 2025 from 32.5 percent of the GDP in 2020. The agency estimated that the size of public debt to GDP in the coming years would fall between 25 percent and 30 percent, surpassing its estimates for comparable countries with the same credit rating of 35-40 percent.

It is worth noting that the stable future outlook indicates the strength of the financial position and net reserve of external assets of the Kingdom, which is supported by the recovery of the non-oil sector as a result of the fast economic recovery from the coronavirus pandemic.

In addition to the contribution of oil revenues to the budget surplus in the third quarter, non-oil revenues also contributed significantly to the surplus by recording a 33 percent increase in the nine months over the same period of last year amounting to SR299.5 billion.

It is believed that the government’s commitment to financial reforms in the medium term has helped achieve financial sustainability, which led to the growth of non-oil revenues by more than 18 percent from 15 percent in the base year 2015.

Moody’s has praised the capital spending of the Public Investment Fund toward major projects, which is expected to contribute as targeted 4-5 percent annually to GDP over the next few years.

This will support government’s economic diversification plans and create jobs in the market without being affected by fluctuations in oil prices.

The strong credit rating of Saudi Arabia confirms the success of the government’s economic diversification plans, which have impacted positively on the Kingdom’s economic growth in the medium and long terms.

I believe what has helped the Kingdom to achieve the strong credit rating by Moody’s is the good financial results it reported in the second and third quarters of the current year.

The Saudi economy has shown quick recovery from the adverse effects of the pandemic, as the Kingdom posted 1.8 percent annual growth in the second quarter of this year.

The third quarter financial results also showed positive signs of recovery, as total revenues amounted to SR243.3 billion ($64.8 billion) and total expenditures totaled SR236.6 billion, posting a surplus of SR6.6 billion for the first time since 2019.

Turki Al-Sheikh, chairman of the board of directors of the General Entertainment Authority, recently revealed that the number of visitors to events and activities of the Riyadh Season 2021 reached nearly 1 million and the events have fetched about SR550 million in direct income so far.

It is worth noting that the Riyadh Season is witnessing 7,500 events and activities across 14 entertainment zones, over a total area of 5.4 million sq. m. The festival will run until March 2022.

 
• Talat Zaki Hafiz is an economist and financial analyst. Twitter: @TalatHafiz