The S&P credit rating agency has confirmed that the economic outlook for Saudi Arabia is stable, adding that it expects the kingdom to register modest economic growth this year thanks to increased government investments and an improvement in the prices of oil.
The rating agency said in a recently published research update that oil prices along with other revenue generating measures, should be supportive of the government’s revenue growth and headline fiscal consolidation, in spite of substantial expenditure growth.
The agency said that they believe the Kingdom will experience economic growth modestly from 2018, which is supported by increased government investment as well as a steady rise in the production of oil.
S&P rating agency which kept its “A-/A-2” rating for the Kingdom unchanged, predicted Saudi Arabia’s economy will grow by 2 per cent in 2018, after last year’s contraction of 0.7 per cent, increasing to 2.2 per cent next year and 2.3 per cent in 2020.
The government of Saudi Arabia is forecasting a 2.7 per cent growth this year.
In December, Saudi Arabia announced a 978 billion riyal budget for this year, which is its largest ever, in a bid to stimulate growth, after 2 years of fiscal austerity in the wake of decreased oil revenues, pushing back a plan to balance its budget from the year 2020 to 2023.
S&P said that this reflects the decision to improve public investment under a 4 year stimulus plan which is aimed at stabilizing private sector demand, even as the Saudi government moves on other fiscal consolidation measures, which includes energy tariff hikes.
The increase in budgeted spending has also been supported by increasing prices of oil, which have recovered from decreases of under $30 a barrel in early 2016 to as high as $70 a barrel the previous month.
The recovery comes after a deal hit late 2016 between non-OPEC and OPEC producers, led by Russia and the Kingdom of Saudi Arabia, to reduce output and increase prices.
S&P said that they expect the prices of oil will be supportive and offset planned increase of expenditure in 2018, as will the measures of boosting revenue linked to electricity tariff revisions and a 5 per cent value added tax introduction, which came into effect at the beginning of 2018.
Despite such increases, the rating agency said that it expected the pace of fiscal consolidation will be “deliberate”, supported by what it describes as Saudi Arabia’s “formidable stocks of liquid external assets.”
The agency said that they anticipate the Kingdom’s liquid external assets on net external debt will average nearly 180% of current account payments over 2018 to 2021.