RIYADH: Saudi Arabia’s economy is projected to expand at an average rate of 3.2 percent annually over the next three years, with significant growth expected in the non-oil sector, according to the global credit agency Moody’s.
The US-based firm forecast that the non-hydrocarbon sector will have a substantial influence on economic growth, contributing an annual average of 3.5 percentage points.
Moody’s attributed this to Saudi Arabia’s effective monetary and macroeconomic policies, robust banking sector regulation, and sound fiscal strategies.
“The positive outlook reflects the increasing likelihood that, through reforms and investment in various non-oil sectors, the sovereign’s economic and fiscal reliance on hydrocarbons will, over time, materially decline,” said the report.
“The government is making progress in implementing its broad-based structural reform agenda, which will support the sustainability of economic diversification efforts over the medium and long term,” it added.
While growth is anticipated, Moody’s also projected an average fiscal deficit for the Kingdom. It is expected to be around 2 percent of the gross domestic product in 2023-2024, with this deficit predicted to increase to 3.5 percent in 2025-2026.
Despite this contrasting with the fiscal surplus of 2.5 percent witnessed in 2022, it is a result of the rise in expenditure associated with Saudi Arabia’s ambitious economic diversification plan.
Nonetheless, Moody’s emphasized the strength of the government’s balance sheet, seeing it as a buffer against these deficits.
“Momentum is gathering behind a wide range of government-sponsored diversification projects and initiatives, which if successfully executed and, importantly, supported by private sector investment, will be the main driver of the expansion of Saudi Arabia’s non-hydrocarbon sector and employment over the coming years,” the report added.
The agency’s forecast aligns with previous official data that highlighted the Kingdom’s non-oil growth.
Saudi Arabia’s GDP grew 1.2 percent year-on-year in the second quarter of 2023, thanks to a 6.1 percent surge in the non-oil sector, according to a report by the General Authority for Statistics.
Furthermore, on Sept. 7, the International Monetary Fund noted that the Kingdom’s fiscal prospects are strong in the near term, with risks largely balanced.
In a press statement, the IMF said Saudi Arabia was the fastest-growing economy among G20 countries, achieving an overall growth rate of 8.7 percent.
The financial agency added that the Kingdom has sufficient precautionary reserves, and the peg of the exchange rate to the US dollar is serving its economy well.