Rating agency S&P has confirmed its stable outlook for Saudi Arabia, saying it expects the Kingdom to register modest economic growth this year thanks to rising government investment and an improvement in oil prices.
“In 2018, oil prices, in addition to other revenue measures, should be supportive of the government’s revenue growth and headline fiscal consolidation, despite substantial expenditure growth,” the agency said in a research update published on Saturday.
“We expect Saudi Arabia will experience modest economic growth from 2018, supported by rising government investment and, later in our forecast period, a gradual increase in oil production.”
S&P, which kept its “A-/A-2” ratings for Saudi Arabia unchanged, forecasts the Kingdom’s economy will grow by 2 percent in 2018, following a contraction of 0.7 percent last year, rising to 2.2 percent in 2019 and 2.3 percent in 2020.
The Saudi government is forecasting 2.7 percent growth this year.
The Kingdom in December announced a 978 billion riyal budget for 2018 — its largest ever — in a bid to stimulate growth following two years of fiscal austerity in the wake of lower oil revenues, pushing back a plan to balance its budget from 2020 to 2023.
“This reflects the decision to increase public investment under a four-year stimulus plan aimed at stabilizing private-sector demand, even as the government moves on other fiscal consolidation measures, such as energy tariff hikes,” S&P said.
The rise in budgeted spending has also been supported by rising oil prices, which have recovered from lows of under $30 a barrel in early 2016 to as high as $70 a barrel last month.
The recovery comes following an agreement struck in late-2016 between OPEC and non-OPEC producers, spearheaded by Saudi Arabia and Russia, to cut output to bolster prices.
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“We expect that oil prices will be supportive and offset planned expenditure increases in 2018, as will revenue-boosting measures linked to electricity tariff revisions and the introduction of a 5% value-added tax, which came into effect at the start of 2018,” said S&P.
In spite of such increases, the agency said it expected the pace of fiscal consolidation will be “deliberate,” supported by what it described as Saudi Arabia’s “formidable stocks of liquid external assets.”
S&P said: “We expect that Saudi Arabia’s liquid external assets, net of external debt, will average about 180 percent of current account payments over 2018-2021.”
By John Everington
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