Saudi Arabia's government balance sheet remains "robust" despite a three-year drop in oil prices taking its toll on finances, Moody's Investor Service said after the kingdom reported its first fiscal surplus since 2014.
Moody's affirmed Saudi Arabia's A1 credit rating with a stable outlook and said the country had a "strong" fiscal position, according to its Saudi annual credit analysis.
The kingdom's credit strengths include "substantial external liquidity buffers, a large stock of proved oil reserves with low extraction costs, and prudent financial system regulation", Moody's said.
Saudi Arabia, the world’s biggest oil exporter, is implementing a series of reforms to overhaul its economy and reduce reliance on hydrocarbons. Saudi Arabia posted a surplus of 27.8 billion riyals (Dh27.22bn) in the first quarter of this year, its first since 2014, boosted by both oil and non-oil revenues.
Saudi's stable outlook reflects Moody's view that risks to the country's credit profile are "broadly balanced", it said.
"Positive developments could stem from the implementation of wide-ranging reforms that enhance competitiveness and private-sector employment while moving the budget towards balance as the government projects to happen by 2023," the report said.
As government spending rises, non-oil growth is expected to accelerate further to 2.3 per cent in 2019 from 2.1 per cent last year. Moody's projects that fiscal spending will be "less supportive of growth" in 2020 due to its assumption of more moderate oil prices during 2019 and 2020.
Over the next five years, Moody's expects Saudi Arabia’s economy will grow at a rate of 2 to 2.5 per cent a year.
"Progress on ambitious plans to diversify Saudi Arabia's economy away from oil (Saudi Vision 2030) could lift the country's long-term growth potential," it said.
Key sectors that the government is focusing efforts include logistics, mining, development of religious tourism, developing entertainment industries, housing and manufacturing (such as defense, aerospace and renewables technologies).
Government-sponsored projects and privatisation will further advance the development of the non-hydrocarbon sector, Moody's said.
Moody’s forecasts that Saudi Arabia will record deficits of around 6 to 7 per cent of GDP during 2019-20, pushing government debt upward to around 26 per cent of GDP.
Saudi Arabia's current account, which returned to surplus in 2017 and 2018, will remain in a surplus of around 5 to 6 per cent of GDP over the next three years, based on Moody’s oil price assumption.
"The large size of the kingdom's economy and its large and fast-growing population relative to the other GCC peers hold promise for future economic diversification," Moody's said in the credit analysis report.