| The early results of Saudi Arabia’s transformational reforms are coming in, and they are looking good. Reports by the International Monetary Fund, Institute of International Finance and ratings agencies S&P Global Ratings and Moody’s Investors Service all point to strong economic prospects for the kingdom.
Indeed, Moody’s raised its outlook for the Saudi economy and now expects growth to expand by 2.5% this year and 2.7% in 2019, up from 2017.
“Although government spending has increased during 2018, we expect a degree of fiscal restraint will continue over the coming years and project average annual real GDP growth of 2.4% over 2018 to 2021," Moody’s said in its twice-yearly research update for the kingdom.
Similarly, S&P Global Ratings reaffirmed its strong ratings on Saudi Arabia, noting that the country was supported by its strong external and fiscal stock position, which is expected to be maintained despite ongoing central government deficits.
The agency lauded the government’s reforms, which include social measures aimed at increasing labour participation, improving levels of educational attainment, and raising the private sector's role in the economy, while achieving a balanced budget by 2023.
While the wider emerging markets are in a state of flux, relatively higher oil prices, the riyal’s peg to the US dollar, large public foreign assets, and low public debt are expected to make Saudi Arabia less prone to emerging market contagion.
The fiscal situation is also now on a firmer footing. The kingdom has implemented substantial fiscal adjustments in recent years, which focused mostly on cuts to capital expenditure.
In addition, higher oil prices, combined with additional non-oil government revenue – as evidenced by the Ministry of Finance’s estimates for the third quarter – and cuts in fuel subsidies, should help offset an increase in government spending and narrow the fiscal deficit.
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