Saudi economy to bounce back in 2021; S&P affirms A-/A-2 ratings

Ratings agency S&P has affirmed Saudi Arabia’s sovereign ratings at A-/A-2 with a stable outlook, as it expects the kingdom to begin to bounce back from the slump caused by the coronavirus pandemic and low oil prices in 2021.

The agency expects the Gulf state’s “relatively strong” government and external balance sheets to continue to support the ratings, even as it acknowledged that the double whammy of low oil prices and the health outbreak is taking a toll on the Saudi economy.

“The Saudi economy has been hit hard by the twin shocks of the pandemic and lower oil prices and demand. Nevertheless, the sovereign’s sizable fiscal and external buffers should help enable it to weather the period,” S&P said.

“The economy should begin to rebound from 2021 on, as global conditions improve,” it added.

Challenges

Early this year, several major oil-consuming countries started implementing precautionary measures to curb the spread of coronavirus. Restrictions like social distancing subsequently led to a sharp fall in oil demand and prices.

The Organisation of Petroleum Exporting Countries (OPEC) and other major oil producers, including  Russia, also agreed in April to cut their production.

S&P said that with the production cuts, combined with the slowdown in the non-oil sector due to the pandemic, will cause Saudi Arabia’s gross domestic product (GDP) to contract by 4.5 percent this year, compared to the positive growth of 0.3 percent recorded in 2019.

Recovery

However, the ratings agency said that, as the global economy rebounds, and oil demand and prices pick up, the kingdom’s real GDP growth should rebound, averaging 2.4 percent over 2021-2023.

The GDP per capita estimate, which will drop sharply to $18,700 this year from $23,300 last year, will post a lacklustre growth of 0.7 percent.

In terms of external accounts, Saudi Arabia is likely to maintain a net external asset position of 133 percent of current account payments in 2020-2023.

“However, without a more significant adjustment, prolonged low oil prices could erode the net-asset-stock position and put pressure on the ratings,” it added.

 

Source: https://www.zawya.com/mena/en/economy/story/Saudi_economy_to_bounce_back_in_2021_SP_affirms_AA2_ratings-ZAWYA20200927090544/

 

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