Overview

• We expect economic growth in Saudi Arabia to be stable, averaging just over 2% per year over 2019-2021.
• Higher-than-expected fiscal revenues have been met with higher expenditures, but we do not expect a material deviation from official fiscal targets.
• We are affirming our 'A-/A-2' long- and short-term sovereign ratings on Saudi Arabia.
• The outlook is stable.

October 06, 2018: 

Rating Action

On Oct. 5, 2018, S&P Global Ratings affirmed its 'A-/A-2' unsolicited long- and short-term foreign and local currency sovereign credit ratings on Saudi Arabia. The outlook is stable.

Outlook
The stable outlook is based on our expectation that moderate economic growth will continue through 2021, supported by rising government investment. At the same time, we expect that the Saudi authorities will continue to take steps to consolidate public finances over the next two years, while maintaining the government's large stocks of liquid external assets. We could raise the ratings if Saudi Arabia's economic growth prospects improved markedly beyond our current assumptions.

We could lower our ratings if we observed a reversal in the trend of fiscal consolidation, or a sharp deterioration of the sovereign's external position. An unexpected materialization of contingent liabilities or a build-up of arrears could also place additional pressure on expenditures. The ratings could also come under pressure if we observed a significant increase in domestic or regional political instability, which we thought would have fiscal consequences.

Rationale

The ratings on Saudi Arabia are supported by its strong external and fiscal stock positions, which we expect it will maintain despite ongoing central government deficits. Since our last review in April, we have raised our oil price assumptions; but we do not expect any material change to the overall pace of fiscal consolidation. We expect the additional revenues from higher oil prices will be spent as is suggested in the recent 2019 Pre-Budget Statement. The ratings are constrained by the limitations on the transparency of government assets and limited monetary policy flexibility.

While decision-making structures are centralized and, in our view, relatively opaque, we do not expect any major deviation from the stated domestic policy course of fiscal consolidation, economic diversification, and gradual socioeconomic liberalization.