Saudi Arabia had the outlook on its debt rating revised to positive from stable by S&P Global Ratings as oil, the kingdom’s main source of income, trades above $100 per barrel.
S&P revised the outlook while affirming the kingdom’s long-term foreign currency debt rating at A-, its seventh highest level, according to a statement on Friday.
“The positive outlook reflects our expectation of improving GDP growth and fiscal dynamics over the medium term, tied to the country’s emergence from the Covid-19 pandemic, improved oil sector prospects, and the government’s reform programmes,” S&P said.
The kingdom is expecting a budget surplus this year and raised its revenue forecast even before Russia’s war in Ukraine sent oil prices soaring. Despite Crown Prince Mohamed bin Salman’s plan to diversify the economy, energy revenue still dominates the Saudi economy and those of its Gulf neighbours. The International Monetary Fund estimates Saudi Arabia needs oil at $72.40 per barrel to balance its budget this year, way lower than current levels.
“In 2020, Saudi Arabia was hit hard by the twin shocks of the pandemic and lower global oil prices and demand, but since 2021, the country’s economy has rebounded as the wider global economy has recovered from the pandemic, and oil demand and prices have improved,” S&P said
The kingdom isn’t planning on increasing expenditure in 2022, a marked contrast to previous years when oil prices soared and the government went on a spending spree. Neighbouring United Arab Emirates is also keeping spending stable this year at around 59bn dirhams ($16.1bn).
Al Rajhi Capital sees the kingdom’s surplus in 2022 at 215bn riyals ($57.3bn) based on an average oil price of $96 a barrel and production of 10.7mn barrels per day. That’s more than double its previous forecast of 100bn riyals.