S&P affirms Saudi rating on expected growth rebound through 2024

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S&P Global Ratings on Tuesday affirmed Saudi Arabia’s A- (minus) credit rating with a stable outlook, expecting a rebound in growth through 2024 driven by higher oil prices, eased OPEC production quotas and a large vaccine rollout in the Kingdom.

After the COVID-19 pandemic weighed on the economy, Saudi Arabia has returned to ambitious investment projects linked to its strategy of weaning the economy off oil, S&P said.

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Significant investments are being made by the Public Investment Fund, the Kingdom’s sovereign wealth fund, and other entities in both the oil and non-oil sectors.

The rating agency sees Saudi Arabia’s deficit dropping from 11.2 percent last year to 4.3 percent in 2021, while averaging 5.7 percent between this year and 2024. Real GDP growth is expected to average 2.4 percent in the same period after contracting 4.1 percent in 2020.

“In 2021, higher oil prices are being partially counterbalanced by constrained annual Saudi oil production volumes, which continue to be limited by an OPEC deal,” S&P said in a mid-year review.

“However, a monthly easing of quotas through 2021 and 2022 will support the Saudi oil sector and economy.”

Megaprojects such as the planned futuristic city Neom “will be driven forward,” S&P said.

Gross debt is expected to continue to increase until 2024 as deficits are partly funded by public debt issuance, though Saudi Arabia will stay in a net asset position on its fiscal and external balances, S&P said. Reserves between 2021 and 2024 are expected to cover an average of 15 months of current account payments.

A significant strengthening of net asset position or improvement in growth prospects could lead S&P to raise ratings, it said.

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