Why did Fitch raise Saudi Arabia’s rating?

The Kingdom's financial strength, public debt control, and continued progress on reforms
Why did Fitch raise Saudi Arabia’s rating?

It was natural for Fitch Ratings to upgrade Saudi Arabia’s rating to “A+” from “A” with a stable outlook, in accordance with the positive data and indicators achieved by the Kingdom at the macroeconomic level, improving its public finances and the reforms it is carrying out on the road to diversifying its economy away from oil, which all contributes to enhancing its economic growth.

Less than a month after Moody’s and Standard & Poor’s revised the outlook for the Saudi economy from stable to positive, the former re-grading the Saudi economy to “A” and the latter upgrading Saudi Arabia’s sovereign rating to “A1”, Fitch upgraded the rating to “A+” from “A” with a stable outlook.

Fitch’s fifth-highest sovereign rating indicates the Kingdom’s fiscal strength, public debt control, and the assumption that current progress on fiscal, economic, and governance reforms will continue.

During 2022, the Saudi economy achieved a GDP growth of 8.7 percent, which is the highest growth rate among the G20 countries in that year, despite the complex economic conditions and challenges experienced by global countries, exceeding the expectations of international organizations, which had predicted a maximum of 8.3 percent. The current growth rate is the highest annual rate in the last decade, according to the General Authority for Statistics in the Kingdom.

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The International Monetary Fund recently predicted that growth in non-oil sectors in the Kingdom would remain strong.

According to official figures in the Kingdom, non-oil activities grew by 5.4 percent in 2022.

Fitch expects Saudi Arabia’s budget to break even this year, after posting a surplus of 2.5 percent of GDP last year. Declines in oil prices and production offset higher non-oil revenues.

“We assume that after the sharp increase in 2022, total spending will decline by 1.9 percent year-on-year. This means that spending will exceed the estimated budget target by 2.5 percent, and non-oil tax revenues are expected to be higher than the budget,” the agency said.

Fitch’s prediction contradicts the estimates of the Saudi Ministry of Finance, which is expected to achieve a surplus of 16 billion riyals this year after revenues reached 1.13 trillion riyals.

Starting next year, Fitch expects a deficit of 1.2 percent of GDP in 2024, assuming average oil prices fall to $75 per barrel, which will be partially offset by higher production.

“Non-oil revenues will increase, but not enough to outweigh low oil revenues. Total spending will be contained, with an increase of about 1 percent overall, supported by lower capital expenditures. All assuming the VAT rate remains at 15 percent.”

The GDP at current prices reached more than one trillion dollars in 2022, which is the first time that the Kingdom’s GDP achieved this total value, supported by the diversity of activities that contributed to its achievement.

Fitch noted that the kingdom’s high degree of dependence on oil represents a weakness in the country’s rating.

Oil revenues will account for about 60 percent of total budget revenues in 2023-2024, and oil GDP will account for 30 percent of nominal GDP, it said.

Fitch noted that the $10 a barrel oil price move “will change our budget forecast by more than 2 percent of GDP.”

“Government decision-making has been strategic, reflecting a policy balance between supporting Vision 2030 projects and responding to rising inflation on the one hand and maintaining fiscal prudence. For example, the wage bill (which accounts for 44 percent of total spending) increased by only 3.5 percent, which is little growth in real terms.”

External Finance


According to the report, foreign reserves, excluding gold, remained broadly stable in 2022, at $459 billion, as fiscal account outflows in the form of investments and deposits abroad offset the large current account surplus (13.6 percent of GDP; $150 billion).

Saudi Arabia has one of the highest reserve coverage ratios among Fitch-rated governments in 18 months of current external payments.

The agency expects reserves to fall marginally to $445 billion in 2023-2024, with the current account surplus falling to nearly 7.5 percent of GDP in 2023 and 4 percent in 2024, due to lower oil revenues, but those overseas investments by large institutions such as the Public Investment Fund and pension funds are “moderate.”

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