Saudi economy to grow at faster rate next year

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Time: 22 July 2020

Low public debt and a strong credit rating have given the Kingdom a cushion against external shocks. (Shutterstock)
  • Moody’s expects growth to be at double the 2015-2019 rate

RIYADH: Saudi Arabia’s low debt and robust balance sheet are among its key credit strengths according to a report from Moody’s, the credit ratings agency.

A large stock of proved hydrocarbon reserves with low extraction costs and prudent financial system regulation also support the sovereign credit profile, it said.

But significant challenges remain for the country that has been hit by the double blow of the pandemic at a time of weak oil prices.

“The Saudi government has made some initial progress in its ambitious and comprehensive reform plans to diversify fiscal revenue streams and the economy away from hydrocarbons,” said Alexander Perjessy, a Moody’s vice president. “However, their full implementation will be challenging and their positive impact will only be felt over the longer term.”

Still, the economy is expected to grow at an average rate of around 3 percent during 2021-24, which is nearly double the average during 2015-19 (1.6 percent) but lower than the 4.1 percent growth rate recorded during 2005-14.

Moody’s expects real GDP to decline by 4.5 percent in 2020 and higher fiscal deficits in the coming years that will increase government debt above 35 percent of GDP from 22.8 percent at the end of 2019.

The swift introduction of stimulus measures have helped the Saudi financial sector respond to the coronavirus pandemic, Oxford Business Group (OBG) and Riyad Bank said in a separate report published on Tuesday.

Long-term investments in health infrastructure in the Kingdom, combined with favorable demographics and firm economic foundations, have also positioned Saudi Arabia well to tackle the challenges presented by the pandemic according to the report.

“Low public debt, a strong credit rating and high foreign exchange reserves provided the Kingdom with a cushion against external shocks, including the decline in global demand for oil and other commodities,” said OBG CEO Andrew Jeffreys.

“While the authorities have had to accommodate these temporary internal shortfalls in revenue, the country’s outlook for recovery is bright, supported by the competitive cost of oil production and an abundance of reserves.”

Riyad Bank’s CEO Tareq Alsadhan, said that banks in the Kingdom had faced the pandemic from an advantageous position, pushed by consecutive years of solid performances.

“Looking ahead, industry is expected to play its part by adopting a prudent approach that balances risk with the need to support the economy,” he said.

Sandeep Srivastava, a partner at PricewaterhouseCoopers (PwC), said that the Saudi economy in 2020 is expected to contract less than other major G20 economies.

While a full economic recovery is still faltering in many countries a recent survey PwC survey found that 72 percent of chief financial officers in the Middle East expect it will take three months or more for businesses to return to “business as usual.”

“As organizations have increasingly realized the effects of COVID-19, we have seen a consistent lengthening in expected recovery timelines,” he said.

“While the contraction (this year) is likely short term in nature, it is important to recognize there has been a significant impact on the economy, businesses, and people.”

This article was first published in Arab News

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