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S&P retains Saudi credit ratings on sustained reforms

The stable outlook balances S&P expectations that the reform agenda will continue to underpin the development of Saudi Arabia's non-oil sector
The stable outlook balances S&P expectations that the reform agenda will continue to underpin the development of Saudi Arabia's non-oil sector

Standard & Poor’s (S&P) has affirmed the credit rating of Saudi Arabia’s domestic and foreign currency at “A/A-1” with a stable outlook, underpinned by the government’s sustained reform momentum in recent years. 

The reforms include measures to foster non-oil economic growth, supported by sovereign wealth fund-led non-oil investments.

A widening of the non-oil tax base and significant social liberalisation against a backdrop of a large growing population are also driving consumption demand. 

These factors combine with the kingdom’s longstanding position as the world’s largest swing oil producer, its leadership role in Opec+ and its consequent ability to influence global oil price trends, S&P said.

After robust real GDP growth of 8.7 percent in 2022 – the fastest among G20 countries – Saudi Arabia’s growth is expected to slow to 0.2 percent in 2023 but average 2.6 percent in 2023-2026.

This comes after global economic conditions, including a subdued rebound in China, led to global oil demand weakening in late 2022 and early 2023, prompting Opec+ to cut oil production levels and resulting in a contraction in the Saudi oil sector.

However, this lower production was partially offset by strong non-oil GDP growth. At the same time, recent supply-side tightness in the global oil market led Brent and Arab-light prices to edge above $90 per barrel in early September. 

“From 2024 onward, we expect higher global oil demand to lead to an increase in Saudi production levels, and this, alongside non-oil growth, will see GDP growth rebound and average 3.4 percent in 2024-2026,” the ratings agency said.

One key factor in Saudi Arabia’s Vision 2030 program and the kingdom’s diversification efforts is the sovereign Public Investment Fund, which will continue to invest in domestic mega projects, key domestic industries and companies, sports and entertainment ventures and international investments. 

However, S&P believes funding pressures may slow the pace of some projects and some investors have raised questions about some projects’ potential financial viability.

The ratings agency estimates the kingdom’s GDP per capita forecast will average $32,400 in 2023-2026 after falling below $23,300 in 2020, down from a pre-pandemic $27,900 in 2019. However, it rebounded sharply to $34,400 in 2022. 

The Saudi statistics authority announced the final results of the 2022 census in May 2023, revealing that the population was below previous estimates, partly due to significant numbers of migrants leaving during the pandemic. The results supported a rise in GDP per capita.