JEDDAH – Robust Saudi government finances, ample fiscal space, elevated foreign assets and a stable financial system boded well for the Kingdom's credit rating, NCB said in its Saudi Economic Perspectives 2013-2014. In April and May, Fitch and Standard & Poor's affirmed the Kingdom's long-term rating at an investment grade AA- with a stable outlook and also maintained the short-term foreign currency issuer default rating at A-1+ and F1+, respectively. These decisions are obviously a confirmation of the strong government finances that have largely withstood oil price volatility and global uncertainties. In our opinion, the continued increase in net foreign assets, largely in relatively less risky and liquid instruments is a clear indication of the government's commitment to fiscal rectitude, which provides crucial reassurance to investors. The recently released report by the G20 that ranked the Kingdom first among its members in the implementation of structural and financial reforms supports Saudi Arabia's positive economic outlook. Public domestic debt was reduced further from SR135.5 billion to SR98.85 billion in 2012, amounting to 3.6 percent relative to GDP, as was anticipated in NCB's previous report. NCB anticipates that government debt will remain below SR100 billion threshold, given the continued settlement of maturing Saudi Development Government Bonds (SDGBs). Moreoer, SAMA's monetary policy will continue to be supportive of the domestic financial system. The central bank maintains a wait-and-see approach in comparison to the proactive stance adopted during 2010 and to a lesser extent in 2011. The pace of Treasury bill issuances rebounded following back-to-back annual declines since April 2012, settling at SR138.7 billion by the end of December, especially that the need to mop up excess liquidity had diminished, with inflation contained below 4 percent. The influx of revenues aided SAMA in increasing net foreign assets by SR421.5 billion to reach a record SR2.43 trillion. SAMA's prudent strategy of seeking lower risk and higher liquidity instruments at these uncertain times in the financial markets have served the country well, with fixed-income securities weighing around 68 percent of total reserve assets. The lock-step nature of Saudi monetary policy with the US is an important factor that will support our view of no change to the domestic benchmarks, with SAMA keeping the repo at 2 percent and the reverse repo at 0.25 percent. Furthermore, monetary aggregates are growing at an acceptable pace, with the liquidity and interbank fronts exhibiting stability. Despite the increased liquidity levels, consumer prices were contained. The fact that credit activity regained its momentum by recording another year of double-digit growth might prop up the money supply (M3) in the near-term via the multiplier effect. – SG
