Moody's rates Saudi Arabia as A1 stable, with a strong fiscal position and significant liquidity buffers
While a new Moody’s Investors Services says that Saudi Arabia’s credit outlook is stable and buffered by a strong fiscal position, the International Monetary Fund’s regional director believes that that the kingdom needs oil prices to be at least $85 per barrel this year to be able to balance its budget.
In its annual credit analysis on Saudi Arabia, Moody’s noted that the kingdom’s credit strengths include a strong fiscal position, significant liquidity buffers and a sizable stock of oil reserves combined with low extraction costs.
Moody’s rates Saudi Arabia as A1 stable, an outlook it says reflects its view that risks to the kingdom’s risks are broadly balanced.
In the report, Moody’s noted that growth in oil revenues before 2014 gave the Saudi government an opportunity to build up a significant asset cushion and reduce debt.
While declining oil prices since 2014 have pushed the budget balance into deficit, its overall balance sheet remains robust, the report noted.
Additionally, the report predicted that overall GDP growth will remain below 2 percent between 2018 and 2022, compared to the 4.6 growth recorded between 2011 and 2016.
Moody’s also forecasts that the government debt burden will continue to increase as a share of GDP from 17.3 percent at the end of 2017, but will peak below 30 percent over the course of the next five years.
Based on the assumption that Brent oil prices will average $60 per barrel in 2018, Moody’s also predicts that the budget deficit will narrow to about 5.8 percent of GDP in 2018, and then to 5.2 percent in 2019.
On Wednesday, Jihad Azour, the International Monetary Fund’s director for the Middle East and Central Asia, said that Saudi Arabia will need oil prices to be between $85 and $87 a barrel this year to balance its budget, compared to a break-even oil price of $83 a barrel in 2017.
“I think the fact that we are currently witnessing a recovery globally and in the region, and the fact that the oil price is going up, shouldn’t at any point in time be considered as a way for them to relax efforts and to be complacent,” he is quoted as saying by Reuters.
The Saudi government has projected a budget deficit of $2 billion in 2018, which it plans to balance by 2023.