S&P Global affirms Saudi Arabia’s ‘A/A-1’ ratings; outlook stable

Agency commends measures to foster non-oil economic growth

NEW YORK: S&P Global Ratings affirmed its ‘A/A-1’ foreign and local-currency unsolicited sovereign credit ratings on Saudi Arabia. The outlook is stable. At the same time, the agency maintained its ‘A+’ transfer and convertibility (T&C) assessment on the sovereign. The stable outlook balances the expectation that the government’s reform agenda will continue to underpin the development of the non-oil sector and support non-oil growth and fiscal receipts, against the cyclicality of a still hydrocarbon-focused economy, with fiscal and societal pressures tied to a growing population.

“We could raise the ratings over the next two years if reforms progress further, alongside strong real per capita economic growth and fiscal discipline. Furthermore, measures to strengthen institutions that, for example, further support the development of domestic capital markets, could be positive for the ratings,” the agency said its report. “Reforms in the past few years, including measures to drive non-oil economic growth and widen the non-oil tax base, alongside significant social liberalization, should continue to improve Saudi Arabia’s economic and fiscal profile,” the rating agency said on Friday.

Saudi Arabia’s economy grew by 1.2 per cent in the second quarter of this year, a slightly faster pace than the initial estimates, driven by a sharp expansion in the non-oil sector of the Arab world’s biggest economy. The kingdom’s gross domestic product at current prices reached 970 billion riyals ($258.66 billion) in the three months to the end of June, the General Authority for Statistics said earlier this month.

The non-oil sector grew by 6.1 per cent on an annual basis, beating the Gastat initial estimate of 5.5 per cent expansion in the three-month period. “We could lower the ratings if real per capita GDP growth were to fall sharply on a sustained basis or we observed significant fiscal weakening, including via an erosion of the government’s net asset position, beyond our expectations. A sustained rise in domestic or regional instability could also weigh on the ratings,” the report said.


The ratings are underpinned by Saudi Arabia’s sustained reform momentum in recent years. Reforms have included measures to foster non-oil economic growth, supported by sovereign-wealth-fund-led non-oil investments; a widening of the non-oil tax base, and significant social liberalization, against a backdrop of a large growing population driving consumption demand. These factors combine with Saudi Arabia’s longstanding and unique position as the world’s largest swing oil producer (with spare installed production capacity permitting it to cut or raise production levels relatively quickly), its leadership role in OPEC+, and its consequent ability to influence global oil price trends.

After very strong real GDP growth of 8.7 percent in 2022 (the fastest among G20 countries), Saudi Arabia’s growth will slow to 0.2 percent in 2023. This comes after global economic conditions, including a subdued rebound in China, led to global oil demand weakening in late 2022 and early 2023, prompting OPEC+ (with Saudi Arabia at the forefront) to cut oil production levels, and resulting in a contraction in the Saudi oil sector.

However, this lower production is being partially offset by strong non-oil GDP growth, while recent supply side tightness in the global oil market has led Brent (and Saudi Arabia’s Arab-light) prices to edge above $90 per barrel (/bbl) in early September. From 2024 onward, we expect higher global oil demand to lead to an increase in Saudi production levels, and this, alongside non-oil growth, will see GDP growth rebound and average 3.4 percent in 2024-2026. * After 8.7 percent real GDP growth in 2022, we forecast a deceleration to 0.2 percent in 2023, owing to oil production cuts, and then a rebound to 3.4 percent in 2024-2026.

We expect current production cuts to remain until the end of 2023. * The non-oil sector is forecast to remain strong in 2023-2026, with contributions from strong service-sector growth, supported by consumer demand, significant ongoing social liberalization, and a growing female workforce. * The economy also continues to benefit from large investment projects in the pipeline, largely funded by the Public Investment Fund (PIF; the country’s main sovereign wealth fund with a wide mandate to invest abroad and domestically) and the National Development Fund (NDF).

After very strong real GDP growth of 8.7 percent in 2022 as oil production and prices, alongside strong non-oil GDP, supported growth, Saudi Arabia and OPEC+ began cutting oil production from late 2022 given global economic weakness. In turn, real growth slowed to 3.8 percent year on year in first-quarter 2023 and 1.1 percent in the second quarter, with a 5.5 percent increase in non-oil activities and 2.7 percent growth in government activities, despite a 4.2 percent decline in oil activities as production decreased.

Most non-oil activity, except for manufacturing, performed well. Given further significant oil production cuts from July onward, we expect full-year real GDP growth to stand at 0.2 percent in 2023, then average 2.6 percent in 2023-2026. Oil production levels (supported by strong non-oil growth) should then increase in line with higher global demand in 2024. In May 2023, the Saudi statistics authority announced the final results of the 2022 census; population numbers were below previous estimates, partly due to significant numbers of migrants leaving during the pandemic. The results supported a rise in GDP per capita.

Our estimate of Saudi Arabia’s GDP per capita fell just below $23,300 in 2020, down from a pre-pandemic $27,900 in 2019, but rebounded sharply to $34,400 in 2022, and we forecast it will average $32,400 in 2023-2026. Saudi Arabia’s majority state-owned oil major, Saudi Aramco, posted the highest profits of any company in history in 2022. Net income amounted to $161 billion for the year, up 47 percent from 2021, spurred by higher oil prices and refining margins and increased volumes.

Aramco’s strong financial performance also supported the government’s fiscal position through dividend payments of $75 billion in 2022, alongside taxes and royalties. After those record-breaking profits, in first-half 2023 the company reported a profit of $62 billion, a 30 percent decline in net half-year income, owing to softer prices and reduced volumes of production. It also announced a dividend of $19.5 billion in the second quarter, with another $19.5 billion expected in the third quarter, and plans to continue delivering performance-based dividends.

Aramco aims to spend about $50 billion per year on supporting domestic oil and gas production and overseas activities. Saudi oil production averaged 10.6 million barrels per day (mmbbl/d) in 2022, compared with an average of 9.1 mmbbl/d in 2021, 9.2 mmbbl/d in 2020, and 9.8 mmbbl/d in 2019. Given cuts in production it is now forecast to average 9.6 mmbbl/d in 2023, and rise slowly in the forecast period.

After averaging $72/bbl in 2021, Brent oil prices averaged $102/bbl in 2022, and S&P Global Ratings forecasts $82/bbl in 2023 and $85/bbl in 2024-2026 (for more information, see “S&P Global Ratings Lowers Hydrocarbon Price Assumptions On Moderate Demand,” published June 22, 2023, on RatingsDirect). Prices for 2025 and 2026 prices are forecast to be significantly higher on average than what we had at our previous review in March, supporting our outer-year economic forecasts.

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