JEDDAH – Standard & Poor's has revised the outlook on the long-term sovereign credit ratings on Saudi Arabia to positive, from stable. It said the outlook revision reflected its opinion that it could upgrade Saudi Arabia during the next 24 months if economic growth remains strong. “In our view, continued growth would help to reduce the country's social challenges, including unemployment, and enhance productivity and competitiveness,” it said in a statement. S&P said growth fundamentals in the Kingdom have strengthened. A long track record of high and steady non-oil growth, averaging eight percent during 2005-2012, has contributed to overall average real GDP growth of 6.5 percent. “In our opinion, the improved growth prospects for the non-oil economy will bolster the economy's resilience to exogenous shocks such as a decline in oil prices,” S&P said. It estimates real per capita growth in 2013 to reach 1.6 percent, down from its estimate of 3.8 percent growth for 2012, mainly due to an expected decrease in Saudi oil production in line with softening demand for oil globally. S&P said: “We believe the government will continue to register strong fiscal and current account surpluses, which we estimate at 11 percent and 20 percent, respectively, this year. We base this on our assumption of a broadly unchanged average oil price in 2013. We also expect government extra-budgetary spending to narrow this year compared with levels seen during 2011-2012.” The report also praised leaders in Saudi Arabia for “actively addressing structural issues”, including the availability of housing and housing finance, as well as tackling labor market imbalances. It applauded the country for its Nitaqat policy to raise the employment of Saudis in the private sector and to raise the labour participation rate of Saudi women. Strategies to raise the cost of foreign labor, while likely to create short-term distortions in the market, would probably help raise productivity over the longer term, S&P said. The rating agency added that Saudi Arabia continues to make progress in transparency and data frequency and availability. “By managing high oil revenues prudently, the government has virtually eliminated its general government debt, generating additional fiscal space for countercyclical policies. “Foreign currency assets under the Saudi Arabian Monetary Agency's management exceeded 90 percent of 2012 GDP at end-March 2013.” S&P said the ratings are constrained by its view that Saudi Arabia's political institutions are at early stages of development compared with most sovereigns in the ‘AA' category. It also noted that given the Saudi riyal's peg to the US dollar, monetary policy flexibility was limited. – SG
