The credit rating agency Fitch confirmed today that its credit rating for the Kingdom remains at “A”, with the outlook changed from “Negative” to 'Stable', making the Kingdom one of the few countries in the world that has managed to adjust the outlook on its credit rating through its economic reforms and appropriate measures to contain the COVID-19 pandemic and mitigate its repercussions.
This was stated in the agency’s credit report, in which it confirmed that its decision to adjust the outlook was based on expectations of a decline in the general budget deficit compared to its last report in November, due to the Kingdom’s continued commitment to fiscal discipline, ongoing structural reforms, and the implementation of various economic diversification plans, in addition to improved oil prices that led to a reduction in the fiscal deficit during the first quarter of this year.
In its report, the agency projected that the Saudi economy would return to positive growth in 2021 following the economic contraction in 2020, along with a return to a current account surplus and a reduction in the fiscal deficit, based on improved global macroeconomic conditions and a recovery in oil prices as the world begins to emerge from the pandemic, particularly since the agency had previously raised its oil price forecast for the current year from $58 to $63 per barrel.
It also projected real GDP growth for the Kingdom’s economy at approximately 2.11% for the current fiscal year, compared to the previous contraction in 2020 of approximately -4.11%.
On the fiscal front, the agency lowered its estimates for the general budget deficit for the current fiscal year 2021 from 8.4% to 3.3% as a percentage of GDP, compared to its previous forecast in December 2020.
The agency estimates that the budget deficit for the 2022 fiscal year will reach approximately -3.8%, and has also revised its estimates for the current account deficit as a percentage of GDP for the 2020 fiscal year to -2.81% of GDP, compared to -5.51% in its previous estimates, The agency estimates that the current account will achieve a surplus of approximately 2.71% of GDP for the 2021 fiscal year.
The agency noted that the Kingdom continues to possess strong sovereign assets, in addition to external financial resources that remain high despite their decline in recent years.
Meanwhile, it lowered its estimates for the size of public debt as a percentage of GDP for 2021 to 31.11% compared to 39.41% in its latest estimates in December 2020, and the agency estimates it will reach approximately 33.11% by 2022.
Fitch noted in its report that the Kingdom has more than 20 months of current external payments, representing one of the highest coverage ratios among sovereigns rated by the agency.
For his part, His Excellency the Minister of Finance, Mr. Mohammed bin Abdullah Al-Jadaan, explained that Fitch’s revision of the outlook for the Kingdom’s credit rating to stable confirms the positive impact of the measures and structural reforms undertaken by the Kingdom over the past five years in line with the objectives of the Kingdom’s Vision 2030, which has positively impacted the effectiveness of fiscal policy and enhanced the efficiency of government operations. These improvements stem from the government’s implementation of structural and fiscal reforms since 2017 and its advancement of a comprehensive economic diversification agenda.
It is worth noting that International Monetary Fund experts confirmed in the 2021 Article IV Consultation Report the continued recovery of the Saudi economy, and the deceleration of consumer price inflation, projecting that non-oil GDP growth will reach 4.31% this year and 3.61% in 2022.
Meanwhile, the Fund’s projections indicate that the private sector will lead growth this year, reaching 5.81%, and will continue to do so in the medium and long term with an average growth rate of 4.81%.