SAUDI ECONOMY FINDS FRESH IMPETUS FROM NON-OIL SECTOR 
The Saudi economy continues to accelerate at an impressive rate. Flash estimates from the government show the economy expanded 3.9% in the first quarter of 2023 compared to the same period last year. The growth was led by non-oil activities, which rose 5.8% during the quarter versus a year ago, followed by government services activities, which jumped 4.9%, while the oil sector recorded an increase of 1.3%.
“Seasonally adjusted real GDP decreased by 1.3% in Q1/2023 compared to the previous quarter (Q4/2022). This decrease was due to the decline in oil activities by 4.8%, while non-oil activities and government services activities grew by 1.5% and 1.1%, respectively,” government data shows.
The Saudi economy surged 8.7% last year, making it the fastest growing G20 economy, as high oil prices boosted revenue and led to the kingdom's first budget surplus in almost 10 years.
The International Monetary Fund (IMF) projects that Saudi GDP growth will more than halve to 3.1% this year, in line with the forecast for Middle East oil exporters. This prediction, however, is higher than the 2.6% growth rate that the IMF projected in January.
“Saudi Arabia has cut its oil production in line with OPEC+ commitments to manage oil markets. While lower production will a ect growth, revenues could rise and this could have a positive impact on both external accounts, the reserves, and the budget deficit,” according to Jihad Azour, director of the Middle East and Central Asia Department at
the IMF.
"Clearly, the strategy over the last five to six years has helped the Saudi economy, and also the public finances, to be less dependent on the cycle of oil."
STRONG FUNDAMENTALS
The Ministry of Finance’s first quarter data shows a deficit of SAR 2.9 billion. Revenues grew 1%, with non-oil revenues rising 9%, and taxes on income, profit, and capital gains up 75%, while other taxes rose 30%.
However, oil revenues dropped 3% during the period. Expenditures were up 29%, with capex spending rising 75%, use of goods and services up 70%, and social benefits up 52%.
The latest purchasing managers’ index (PMI) survey also suggests non-oil private sector companies in Saudi Arabia experienced a sustained improvement in overall business performance in April.
“New orders increased at the fastest rate since September 2014 as stronger domestic demand more than o set a slight drop in export sales. Job creation also continued in April, as signalled by a rise in total employment numbers for the 13th month in a row,” S&P Global Rating’s April PMI reported.
“A sharp and accelerated increase in new business volumes was the main driver of the rise in the headline PMI during April. Moreover, the rate of new order growth was the fastest for just over eight-and-a-half years. Survey respondents commented on a range of positive factors supporting customer demand, including rising tourism numbers and higher consumer spending, alongside new business opportunities related to major infrastructure projects.”
Stronger consumer and business sentiment was reflected in the latest e-commerce industry in the kingdom, which has shown remarkable growth, with an annual increase of over 32% in the first quarter of 2023. The number of commercial registers issued during this period has reached 4,093, compared to 3,499 in Q1 2022.
RATINGS UPGRADE
Fitch Ratings recently upgraded Saudi Arabia's sovereign credit rating to 'A+' with a stable outlook.
The rating upgrade reflects the kingdom's strong fiscal and external balance sheets with large sovereign net foreign assets compared to 'AA' median and debt/GDP half of 'A' medians. In its press statement, the agency said it expects the kingdom to maintain fiscal, economic and governance reforms, while pointing to its formidable foreign reserves, which is one of the highest reserve coverage ratios among Fitch-rated sovereigns.
The agency also underscored the government's strategic decision-making, which is being balanced between supporting Vision 2030 projects and responding to high inflation while remaining fiscally prudent. Fitch forecasts a 5% growth in the non-oil private sector in 2023, to be followed by a 4% growth during the 2024 to 2025 period.
Fitch’s upgrades, a few months after Moody’s Ratings Services a rmed its A1 credit rating for the kingdom. Moody's lauded Saudi for adopting prudent policies to maintain fiscal sustainability, improving public financial management, and raising the quality of fiscal planning to enhance economic growth and ensure e cient use of resources under the government’s Fiscal Sustainability Program, a key Saudi Vision 2030 initiative.
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