Growth still expected to be lower than pre-oil price crash of 2014
Saudi Arabia to see 2.7% GDP growth next year, Moody’s says
Saudi Arabia’s economic growth is set to rise to 2.5 per cent by the end of this year and 2.7 per cent in 2019 up from 2017 when low oil prices squeezed state revenues and hampered growth, according to new forecasts from Moody’s Investors Service.
“Our GDP forecasts are significantly higher because of higher oil production and higher oil prices,” said Alexander Perjessy, vice-president and analyst at the rating agency, in an email to The National on Saturday.
“Higher oil prices and reasonably strong expenditure control underpins the improvement in the fiscal forecasts.” The kingdom’s GDP growth shrank 0.9 per cent in 2017, the lowest in decades, according to Moody’s.
The world’s largest oil exporter has historically experienced strong growth rates, supported by substantial public sector spending increases when oil prices were high. However, real GDP growth has decelerated since 2014, mainly due to fiscal consolidation.
“Although government spending has increased during 2018, we expect a degree of fiscal restraint will continue over the coming years and project average annual real GDP growth of 2.4 per cent over 2018-2021," Moody’s said in its twice-yearly research update for the kingdom, authored by Mr Perjessy.
This is lower than the 4.6 per cent recorded in 2011-2016.
Moody’s has given Saudi Arabia an A1 ‘stable’ rating. The country’s credit profile is “underpinned by the government’s robust balance sheet and substantial external liquidity buffers”, the report said. “On balance, we think Saudi Arabia's fiscal position remains comparatively robust.”
However, government revenues remain vulnerable to declines in oil prices, and proposed fiscal reforms will remain at risk from socioeconomic challenges including high unemployment, population growth and geopolitical risk.
Saudi Arabia’s fiscal balance deteriorated sharply between 2014 and 2016 when oil prices were low, with large surpluses giving rise to double-digit deficits in 2015 and 2016. Since then, the deficit has moderated to 9 per cent of GDP in 2017 and the degree of vulnerability to oil prices has been reduced due to reforms such as public spending cuts and measures that boosted the non-oil economy to 9.9 per cent of GDP in 2017, from 4.5 percent of GDP in 2014, Moody’s said.
Public debt is expected to remain well below 25 per cent of GDP in the medium term and small relative to the government’s robust financial buffers.
The government’s debt burden was less than 20 per cent of GDP at the end of 2017 and is expected to improve “significantly” over the next two years.