Fitch affirms Saudi Arabia’s rating at ‘A’ with stable outlook

Riyadh City

Fitch Ratings affirmed today, July 15, Saudi Arabia’s long-term foreign-currency issuer default rating (IDR) rating at “A” and revised outlook to “stable” from “negative”.
 

The outlook revision is owed to significantly higher oil prices and continued government commitment to fiscal consolidation, the credit rating agency said in a report.
 

Commenting on the report, the Ministry of Finance said that the Kingdom thus becomes among a few countries whose outlook was revised through economic reforms and other measures aimed to offset the repercussions of the pandemic. 
 

The decision to revise Saudi Arabia’s outlook was based on forecasts for lower budget deficit, compared to the latest estimates in November, due to the Kingdom’s commitment to fiscal consolidation and continued structural reforms, as well as the implementation of economic diversification plans and improved oil prices, which led to lowering fiscal deficit in the first quarter, according to Fitch.
 

The Saudi economy is on track to return to positive growth in 2021 following the economic shrinking in 2020. In addition, the current account level will be back to surplus amid the lowering of deficit in public finance, based on improved macroeconomic conditions and rebound in oil prices, Fitch said.
 

The firm also expects the Kingdom’s actual GDP to grow by 2.1% for the current fiscal year, compared to shrinking by 4.1% in 2020.
 

Fitch forecasts the Kingdom’s budget deficit to narrow to 3.3% of GDP in 2021, from 8.4% in its previous estimates in December 2020.
 

It also estimates that the budget deficit will reach nearly 3.8% in 2022. Estimates for the current account deficit for 2022 were also revised to reach 2.8%, from 5.5% in previous estimates.
 

Saudi current account is likely to achieve a surplus of 2.7% of GDP in 2021, said Fitch.
 

According to Fitch, Saudi Arabia still has strong sovereign assets, while external financial sources remain high despite their decline in recent years.
 

Fitch also lowered its forecasts for the public debt-to-GDP ratio to 31.1% in 2021, compared to 39.4% previously forecasted in December 2020, and expects it to reach 33.1% in 2022.
 

Saudi Arabia has one of the highest reserve coverage ratios among Fitch-rated sovereigns at more than 20 months of current external payments, according to the report.