Fitch affirms Saudi Arabia outlook stable at ‘A+’

Fitch Ratings on Thursday affirmed Saudi Arabia’s long-term foreign-currency Issuer Default Rating (IDR) at 'A+' with a stable outlook.

Fitch said that Saudi Arabia’s ratings are “supported by strong fiscal and external balance sheets, including exceptionally high international reserves, low government debt, significant government assets and strong commitment to an ambitious reform agenda.”

The recovery of oil prices has led to a sharp improvement in the current account balance, which is expected to be broadly balanced in 2017 and 2018 after a deficit of 4.3 percent of GDP in 2016.

The report said that “at 23 months of current external payments, Saudi Arabian Monetary Agency (SAMA) reserves are well above the ‘A’ category median of five months.”

The Fitch report said central government deficit is expected to narrow to 8.7 percent of GDP in 2017, from 17.2 percent in 2016, largely as a result of higher oil prices and because clearance of arrears that widened the 2016 deficit by 4.4 percent of GDP will no longer be necessary.

“The deficit will shrink more moderately in subsequent years to 5.4 percent of GDP in 2019. The government has indicated that expenditure may rise 4 percent next year, but a number of revenue measures should still lead to a significant improvement of the fiscal position,” the report said.

Fitch noted that the government increased excise duties in June and expat levies in July and is still expected to raise energy costs before the end of the year. A 5 percent value added tax will be introduced at the beginning of 2018 and further energy price reforms and expat levies are also planned.

Reform agenda

The measures are part of the government’s ambitious reform agenda, the Vision 2030, which seeks to put public finances on a sustainable basis but also aims to reduce the dependence of the government on oil revenue.

The planned sale of a 5 percent stake in Saudi Aramco will primarily be used to fund domestic investments to diversify the economy.

The government is also pursuing the privatization of other state entities and seeks to attract private financing for a wide range of projects.