Moody’s affirms Kingdom’s credit rating at A1 with positive outlook 
Global credit rating agency Moody’s has affirmed Saudi Arabia’s credit rating at A1 with a positive outlook.
The rating is based on the Kingdom’s strong economy supported by its vast hydrocarbon endowment, improving institutions, policy effectiveness and robust balance sheet, including large foreign currency buffers.
It is also based on an assessment of the significant progress made by the government since 2016 in implementing its broad-based reforms agenda and the effectiveness of its macroeconomic and fiscal policies.
Moody’s expects the Kingdom to continue implementing large diversification projects in support of nonhydrocarbon economic growth as they are designed to be modular and commercialized in phases.
The agency said the positive outlook also reflected the economic and investment reforms in various non-oil sectors that would, over time, lead to a material decline in the Kingdom’s economic and fiscal reliance on hydrocarbons.
Despite the strong rating, Moody’s cited several potential sovereign risks attached to the cyclical declines in oil demand and prices and longstanding regional geopolitical risks.
The agency expects the Kingdom to continue implementing large diversification projects in support of nonhydrocarbon economic growth.
For example, the agency assumes that all voluntary oil production cuts in Saudi Arabia will remain in place until the end of this year, before they are gradually unwound from 2025 in line with global demand growth. At the same time, subdued oil production will weigh on the government’s fiscal balance, which Moody’s expects will remain in deficit at about 3-4 percent of gross domestic product in 2024-25, compared to a deficit of 2 percent in 2023.
The agency expects the Kingdom’s real GDP to expand by 2-2.5 percent in 2024 and by about 5 percent in 2025, led by robust economic activity in the nonhydrocarbon sector.
I believe that Moody’s has fairly rated the Kingdom’s credit strength, considering the fluctuations in global oil prices and the Kingdom’s voluntary oil cuts of 1.5 million barrels to support OPEC+ cuts until the end of this year, aiming to achieve and sustain a stable oil market.
Moody’s assumes that oil prices will average $82 per barrel in 2024 and $75 in 2025. Based on its assumption, the Kingdom’s public debt is likely to rise to about 30 percent of GDP in 2025 from 26 percent in 2023, which is still within the government’s target.
The government will continue to have a strong balance sheet given its sizable financial assets, which will mitigate the effect of the increase in the public debt.
The Kingdom’s positive outlook reflects its successful economic and financial reforms in line with Vision 2030, which seeks to significantly reduce the country’s economic and fiscal reliance on oil revenues.
Finally, the diversification of the Kingdom’s economy and the large foreign currency buffers will support its economy and financial position in the event of unexpected global economic shocks.
• Talat Zaki Hafiz is an economist and financial analyst. X: @TalatHafiz.
