Moody’s has upgraded the Kingdom’s credit rating for local and foreign currency to Aa1 from Aa2.
Financial Strength
The global agency explained that the change in rating reflects increased policy predictability and decision-making processes, which affect non-government issuers in light of institutional improvements.
It also mentioned that the “zero gap” between the foreign and local currency ratings is supported by the Saudi Central Bank’s “extremely large” foreign exchange reserves, reflecting very low transfer and convertibility risks.
So What
Moody’s praised the significant progress made by the Saudi government in comprehensive reforms since 2016, as well as the effectiveness of its fiscal and macroeconomic policies, which have contributed to the sustainability of economic diversification.
It also stated that non-oil economic growth is a “top priority” for the world’s largest crude oil exporter, as it works to increase investments in the tourism sector and support the private sector.
Some Context
The agency revealed the continued “three-notch gap” between the local currency credit rating and the sovereign rating of A1. This gap is attributed to the ongoing reliance of both the government and private sectors on a single income source, in addition to the “increasing geopolitical tensions” in the Middle East.
Now What
Moody’s report predicts that real GDP will grow between 2% and 2.5% this year, and 5% next year, driven by “strong economic activity” in the non-oil sector, supported by the implementation of various large projects.
However, the agency noted that the continued reduction in oil production will affect the government’s fiscal balance, forecasting a deficit of 3% to 4% of GDP for this year and the next, compared to a 2% deficit in 2023.
Finally, Moody’s assumes that oil prices will average $82 per barrel this year, and reach $75 per barrel by 2025, leading to an expected increase in government debt to about 30% of GDP next year from 26% last year.
Despite this, it confirmed that the Kingdom will continue to maintain a strong balance sheet, thanks to the large size of its government financial assets.
