(Bloomberg) -- S&P Global Ratings raised Saudi Arabia’s outlook to positive from stable and flagged the possibility for future ratings increases as the kingdom presses ahead with a massive economic overhaul aimed at diversifying revenues and boosting the non-oil sector.
“The positive outlook reflects the potential that the Saudi government’s wide-ranging reforms and investments will underpin the development of the non-oil economy while upholding sustainable public finances,” S&P analysts including Zahabia Gupta said in a report on Friday.
It affirmed Saudi Arabia’s long-term foreign currency debt rating at A — the sixth highest and one notch below the grade assigned by Moody’s and Fitch — and said there could be upgrades in the next two years if reforms lead to “steady growth” in GDP per capita.
Downside risks to the outlook may emerge if there’s “pronounced fiscal weakening,” S&P said, while noting Saudi Arabia remains in a comfortable position to manage increased investment spending, rising debt levels and the potential for lower oil revenues.
A recalibration of priorities and timelines for infrastructure projects under the so-called Vision 2030 diversification agenda should help contain pressure on public finances, S&P said.
Saudi Arabia has already projected it will face budget deficits until at least 2026 as muted oil revenues run up against huge domestic spending plans to support Vision 2030. That economic blueprint, launched by Crown Prince Mohammed bin Salman in 2016, sets out to create new industries and jobs that’ll help wean the Saudi economy off its dependence on petrodollars.
S&P sees Saudi Arabia running smaller current account surpluses of about 1.2% of GDP through 2027. That view stands in contrast to the International Monetary Fund, which said this month it expects the kingdom to post deficits from 2024 to 2029.
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Zoe Schneeweiss.
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