Fitch Ratings’ positive assessment of the Saudi economy underscores the country’s fiscal strength and growth prospects.

In November, Fitch affirmed Saudi Arabia's rating at 'A+' with a stable outlook, saying that: “We expect a pick-up of growth to 1.8% in 2018 and 1.9% in 2019”. The ratings agency added that the oil-rich kingdom’s fiscal expansion will accelerate non-oil growth

Fitch expects strong Brent crude prices of around USD 70 per barrel to shrink the central government deficit to 4.1% of GDP in 2018, and the financing requirement to contract by more than 50%.

Government drawdowns from the Saudi Arabian Monetary Authority (SAMA) would become unnecessary and 2018 could see a build-up of SAMA foreign reserves to the tune of USD 16 billion. SAMA net foreign assets have already increased by USD 9 billion in the first four months of 2018,” Fitch said.

Fitch’s assessment came a month after Moody's Investor Service affirmed the kingdom's A1 rating with a stable outlook, and raised its GDP growth forecasts for the period 2018-2019 to 2.5% and 2.7%, respectively.

The country’s credit profile is “underpinned by the government’s robust balance sheet and substantial external liquidity buffers”, Moody’s noted. “On balance, we think Saudi Arabia's fiscal position remains comparatively robust.

The improving economic outlook has led to tightening of the spread between three-month Saudi bank rates (SAIBOR), and three-month LIBOR, the benchmark rate that represents the interest rate at which banks offer to lend funds to one another.

An additional boost to capital inflows came from an USD 11 billion loan recently raised by the Public Investment Fund (PIF), which further contributed to the fiscal cushion.

Amid persistent deficits, we expect that the government will continue to issue domestic and international debt and draw down on its deposits at SAMA,” said Fitch analyst Krisjanis Krustins in a note.

The ratings agency see the central government debt ratio rising to around 27% of GDP in 2019 from a little over 17% in 2017, by which time, debt net of general government deposits at SAMA could turn positive.

Our fiscal forecasts imply net financing needs of around SAR 230 billion in 2018 and SAR 180 billion in 2019,” said Krustins.

Saudi’s economic indicators are also improving. Credit to the private sector grew +1.4% year on year in September – the sixth consecutive month of improvement – while deposits rose for the first time in seven months, by +2.1% y-o-y, according to latest government data.

In addition, point-of-sales transactions continued to grow at a fast pace of 12.7% year on year in September, while ATM transactions saw a sharp rise of +12.3% compared to the previous year.

Also, foreign reserve assets reached their highest level in six quarters in the third quarter, rising 4.5% y-o-y, on the back of higher oil revenue and debt issuances by the authorities, according to Saudi Arabian Monetary Authority's October report.

At the same time, Saudi unemployment figures remained constant at 12.9%, while labour participation rate reached 42% in the second quarter, according to General Authority for Statistics.

Meanwhile, output and new orders rose at a brisk pace in November, with new export order growth firmer in November than it has been in recent months, according to Markit, which tracks purchasing managers’ index for many countries.

The recovery in new orders thus likely reflects stronger domestic demand on the back of strong price discounts.

“Many firms surveyed indicated that competition for new work was strong, and as a result, selling prices were marginally lower on average last month,” Markit said. “Firms also indicated that they were increasingly focused on cost-savings. As a result, expansion in both employment and purchasing activity slowed in November, despite stronger new order growth.

The country is also attracting new companies as the Saudi Vision 2030 programme kicks into high gear

Saudi Arabian General Investment Authority (SAGIA) reported that in the third quarter of 2018, the number of licenses granted to foreign and domestic companies stood at 499, an increase of more than 90% compared to the same period in 2017.

Ibrahim bin Saleh Al-Suwail, SAGIA's deputy governor for investor services and consultations, believes the surge in the number of investments in the kingdom reflects the qualitative leap enhancing the diversification of its economy. This is due to the efforts being exerted by SAGIA, in co-operation with relevant authorities, to facilitate business set-up in and attract foreign investments to the Saudi market.