Saudi pre-budget statement well-received by top credit agencies
Some of the world’s top credit rating agencies have given an initial thumbs up to financial and economic indicators contained in Saudi Arabia’s pre-budget statement for 2022.
Fitch Ratings said that the Kingdom’s maintenance of a large financial reserve would help to support its credit rating and provide greater flexibility to meet public financing needs amid the continued instability of oil revenues.
And Moody’s also pointed out that the Saudi government’s spending plans were a positive move toward the development of the country’s credit rating. The firm also noted that the Kingdom’s proposals for further spending cuts during 2022 and 2023 aligned with its previously published fiscal balance program and showed commitment to spending restraint despite significant upward revisions to revenue projections amid higher oil prices.
Both agencies highlighted the positive future directions of the financial policies being pursued by the nation as an extension of the structural measures and reforms taken over the past five years in accordance with the objectives of Vision 2030.
The upbeat comments by the two international ratings agencies on the pre-budget statement paint a bright future for the Saudi economy in the medium term, opinions supported by the quick economic recovery this year compared to 2020 when it contracted by 4.11 percent due to the impact of the coronavirus disease (COVID-19) pandemic.
The Saudi economy started to rebound from the second quarter of this year thanks to the government’s strong commitment to press ahead with implementing the economic and financial reforms required to achieve the goals of Vision 2030.
Due to the Saudi government’s determination to push on with its reform program, the recovery in economic activity could well take place at a faster rate than pre-pandemic levels.
Talat Zaki Hafiz
The ambitious reform plan includes the development of public finances to meet the objectives of the country’s financial sustainability program designed to strengthen the government’s financial control by improving its spending efficiency.
Controlling public spending and improving its efficiency was expected to narrow the budget deficit for 2022, which has been estimated to reach around 1.6 percent of gross domestic product. And by continuing the gradual decline in the budget deficit in the medium term, it is forecasted that there will be a budget surplus in 2023.
A surplus would help the government to control annual borrowing and keep it fixed at SR989 billion ($263.7 billion) in 2022, equivalent to 31.3 percent. The budget surpluses anticipated from 2023 will be directed to repay the public debt and maintain it at the desired level to GDP. This will enhance government reserves and improve its ability to deal with any unforeseen financial shocks.
Due to the Saudi government’s determination to push on with its reform program, the recovery in economic activity could well take place at a faster rate than pre-pandemic levels. Also, government initiatives to stimulate the economy will support the private sector and enhance its contribution to the Kingdom’s GDP to reach 65 percent by 2030.
Last but not least, the government aims to maintain approved ceilings for public expenditure in the medium term to support the Kingdom’s vision realization program related to creating job openings for Saudi nationals, stimulate the private sector to lead investment opportunities, and continue the privatization of government assets and services.
• Talat Zaki Hafiz is an economist and financial analyst