S&P affirms Saudi Arabia’s stable outlook on economic and social reforms

Accelerating non-oil sector investment will keep GDP growth at 3.3% annually over 2024-2027, the rating agency says

Riyadh skyline. Saudi Arabia's economy contracted by 0.8 per cent annually last year, mainly due to a sharp decline in the oil sector. EPA

S&P Global Ratings has affirmed Saudi Arabia’s rating at “A/A-1” with a stable outlook, on the expectation that economic and social reforms will continue to improve the country’s economic resilience and wealth levels.

The A/A-1 rating indicates the country’s strong capacity to meet its financial commitments.

“The stable outlook reflects that we expect the government’s wide-ranging reforms will continue to underpin the development of the non-oil sector and support non-oil growth and fiscal receipts,” the rating agency said on Friday.

“This is balanced against the cyclicality of a still hydrocarbon-focused economy, and fiscal pressures tied to the country’s transformation plan and expanding population.”

Saudi Arabia is focusing on diversifying its economy away from oil, supporting the development of sectors including technology, property, tourism and infrastructure as part of Vision 2030.

The kingdom aims to generate employment and help its non-oil economy to grow.

Saudi Arabia's economy, the largest in the Arab world, contracted by 0.8 per cent annually last year, mainly due to a sharp decline in the oil sector, although the non-oil sector expanded by 4.4 per cent during the period.

The oil sector recorded a 9 per cent drop in 2023, while the government sector grew 2.1 per cent, the General Authority for Statistics said on March 10.

Last year, the kingdom’s gross domestic product at current prices exceeded 4 trillion Saudi riyals ($1.06 trillion), according to the latest data from Gastat.

Crude petroleum and natural gas activities contributed 25.4 per cent to the total, followed by government services (15.7 per cent), wholesale and retail trade, restaurants and hotels (9.7 per cent), manufacturing excluding petroleum refining (8.8 per cent), petroleum refining activities (6 per cent) and real estate (5.9 per cent).

Saudi Arabia, along with other members of the Opec+ alliance, has been reducing crude output as part of efforts to “balance the market”.

This month, the kingdom, the world’s biggest oil exporter and Opec's largest producer, said it will extend its voluntary cut of one million barrels per day to the end of the second quarter of 2024.

The production cap is in addition to the voluntary cut of 500,000 bpd announced by the kingdom in April 2023, which will remain in effect until the end of December.

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In the lead-up to 2030, S&P Global said it expected to see an acceleration of investment projects seeking to establish new industries, such as tourism, and diversify the economy away from its primary reliance on the upstream hydrocarbon sector.

“An acceleration of non-oil sector investment and robust consumption growth will keep Saudi Arabia’s overall GDP growth at 3.3 per cent, on average, annually over 2024-2027,” the rating agency said.

“Economic diversification away from upstream crude production continues, with the non-oil sector now accounting for around 60 per cent of GDP.”

However, S&P projected fiscal deficits of around 2 per cent of GDP over the 2024-2027 period.

The agency estimated that gross general government debt will gradually rise to about 26 per cent of GDP in 2027, from 22 per cent in 2023.

It estimated that current account surpluses would average 1.1 per cent of GDP over 2024-2027, after an estimated 3.6 per cent in 2023.

“We expect that gradually increasing oil production volumes from 2025, relatively favourable oil prices, and rising tourism receipts will narrowly outpace the strong expected growth in imports,” S&P Global said.

The agency said it expected inflation to average 2.2 per cent in 2024 and 1.8 per cent in 2025-2027, though it warned that these projections could be threatened by supply-side constraints and Red Sea-related disruptions.