Saudi Arabia Financially Strong Despite Problems

Posted on November 11, 2015 · 2 min read

Saudi Arabia Financially Strong Despite Problems - Featured Image | MEA Markets
Share this article
Image

Saudi Arabia Financially Strong Despite Problems

Saudi Arabia’s fiscal position is weakening but is still relatively strong, with volatile oil prices will continue to weigh on the government’s balance sheet, says Moody’s Investors Service in a recently published report.

It expects that lower oil revenues will result in continued large budget deficits, a drawdown in reserves, and increased sovereign debt issuance. Although the government has begun to cut back on expenditures, further cuts are likely to reduce the fiscal deficits. Without such cuts and/or non-oil revenue increases, the Kingdom’s creditworthiness will be affected.

“Given Saudi Arabia’s dependence on the volatile hydrocarbon sector, we expect that low oil prices will continue to drive fiscal deficits for several years. While the kingdom’s large assets provide a cushion, we believe that further measures to address the deficit will be forthcoming,” says Steven Hess, a Moody’s Senior Vice President.

With Saudi Arabia’s 2015 budget estimating that 80% of revenues will be derived from the oil industry, Moody’s expects a 2015 fiscal deficit of SR411 billion (USD110 billion), or 17% of GDP. As a result, the rating agency projects that Saudi Arabia’s debt issuance will continue to increase, with the ratio of government debt to GDP rising to 6.4% at end-2015, from 1.6% at end-2014.

However, Moody’s also notes that the Saudi government’s financial reserves accumulated before the oil price decline provides a solid buffer, with a decade of considerable fiscal surpluses allowing it to finance large deficits without undermining its fiscal strength in the near term.

A slowdown in government capital spending will negatively impact wider economic growth, according to Moody’s. The rating agency estimates real GDP growth of 2.5%-3.0% over the next two years, down from the 5.5% decade average, as the government adapts to lower oil revenues and as some government-financed projects are wrapped up.

You might also like

Looking for more? Gain deeper insights with these recommended articles, selected to provide further value.

November 3, 2016 Mydala to Enter UAE Market with Launch of Dubai Website

mydala.com, India's leading local services marketing platform, has announced expansion plans for the UAE market and is launching operations in Dubai.

September 8, 2015 VAT in the GCC – Old News?

The recent action taken by the UAE to eliminate fuel subsidies with effect from 1 August 2015 ignited the debate on tax reform in the Gulf Cooperation Council (GCC) countries.

August 25, 2020 Kuwait Equities Attractively Priced as The Country Embarks on Structural Changes and Awaits the MSCI Reclassification to Emerging Market Status

Delay in MSCI’s upgrade to emerging market status was a blessing in disguise as it allowed Kuwaiti companies to make changes prior to the inclusion of new investor inflows.

Join our newsletter.

Gain Access To Exclusive Content

Stay Updated With The Latest News

It's Free To Subscribe

By signing up, you agree to receive marketing emails.

Join our newsletter box - side image
Trusted by the best teams around the world