Moody’s Raises Saudi Outlook on Improved Fiscal Track Record

(Bloomberg) -- Saudi Arabia’s credit rating outlook was raised to stable from negative by Moody’s Investors Service, citing the kingdom’s ability to reverse much of last year’s debt increase.  

Moody’s affirmed the sovereign at A1, its fifth-highest grade, according to a statement on Friday. That’s higher than Fitch Ratings and S&P Global Ratings. The last time Moody’s cut Saudi’s outlook, it highlighted weakening fiscal strength stemming from the severe shock to global oil demand and prices triggered by the Covid-19 pandemic. 

The decision is based on the “assessment of the government’s improving track record of fiscal policy effectiveness, evidenced by policy responses in periods of both low and high oil prices, that consistently demonstrate a commitment to fiscal consolidation and longer-term fiscal sustainability,” analysts including Lucie Villa said. 

“The expected fiscal improvement over the next several years will be facilitated by higher oil prices, although the stable outlook also takes into account the expectation that oil prices will remain volatile,” they said.

The Gulf kingdom, one of the world’s top oil exporter, has been trying for years to diversify its economy away from the fuel. That’s mostly reflected by Crown Prince Mohammed bin Salman’s ‘Vision 2030’ transformation plan, dependent mainly on mega projects aimed at inducing tourism. Still, more than two-thirds of Saudi Arabia’s exports come from oil. 

This reliance will “remain an important feature of Saudi Arabia’s credit profile for many years to come, constraining the sovereign’s ratings,” according to Moody’s.

A ratings upgrade could come if oil diversification reforms happen at a faster pace than expected, Moody’s said. 

Improvements would be reflected by a “declining government debt burden, independent of oil price cycles, increasing fiscal buffers and evidence of significant and steady progress in diversifying the economy and fiscal revenue streams,” the analysts said.

©2021 Bloomberg L.P.