A recent credit rating report issued by Fitch rating agency has upgraded Saudi Arabia’s Long-Term Foreign-Currency Issuer Default Rating to “A+” from “A” with a stable outlook.

Fitch based its outstanding credit rating of Saudi Arabia on several key strong financial drivers, including strong fiscal and external balance sheets, with government debt/gross domestic product (GDP) and sovereign net foreign assets considerably stronger than both the “A” and “AA” medians, and significant fiscal buffers in the form of deposits and other public sector assets.

The upgrade also assumed an ongoing commitment to gradual progress with fiscal, economic and governance reforms.

The agency indicated that the Kingdom’s foreign reserves excluding gold remained broadly stable in 2022, at $459 billion, as the financial account outflows in the form of investments and deposits abroad offset the substantial current account surplus (13.6 percent of GDP; $150 billion).

It is worth mentioning that Fitch’s strong credit rating of the Kingdom is supported by the highest reserve coverage ratios among Fitch-rated sovereigns at 18 months of current external payments, despite that Fitch has forecast that the reserves will decline marginally to $445 billion in 2023-2024, as the current account surplus falls close to 7.5 percent of GDP in 2023 and 4 percent in 2024. This is due to lower oil revenue; however, despite that fact, investments by large institutions such as the Public Investment Fund and pension funds will make up for that decline and moderate it.

Also, the agency forecast that debt/GDP will increase to 24.7 percent in 2023 and rise but remain below 30 percent in 2024-2025. Fitch assumed that the non-oil revenue will increase but not sufficiently enough to outweigh the expected reduction in oil revenue due to the expected fall in price to $75 per barrel in 2024.

Fitch has assessed the credit and financial position of the Kingdom fairly, and it is possible to maintain this strong assessment.

The agency projected a real growth of 5 percent in the non-oil private sector in 2023 (5.4 percent in 2022). This is supported by higher government capex, investments by the PIF, including giga-projects, robust credit growth, ongoing development of the retail and entertainment sectors, as well as employment gains among Saudis and expats.

Fitch forecast that oil revenue will account for about 60 percent of total budget revenue in 2023-2024 (albeit down from 90 percent 10 years ago).

Despite the strong credit rating of the Kingdom, Fitch has pointed out several rating sensitivities that could, individually or collectively, lead to negative rating action/downgrades. For example, deterioration in the overall public finance position reflected in government debt/GDP trending firmly above Fitch’s forecast or marked drawdowns of government assets, including government deposits at the central bank, could lead to a downgrade. However, such deterioration is mitigated by the continuation of fiscal reforms, which will enhance the budget’s resilience to oil price volatility.

I believe that Fitch has assessed the credit and financial position of the Kingdom fairly, and it is possible to maintain this strong assessment and even improve it considering the continuation of the government’s financial and economic reform programs.

• Talat Zaki Hafiz is an economist and financial analyst. Twitter: @TalatHafiz