Saudi Arabia is set to become one of the world's fastest-growing large economies in 2022 with a real GDP growth in excess of 7%. The current account surplus will hit 13.7% of GDP in 2022, according to top ratings agency S&P Global.
The growth was mainly driven by high oil prices, which helped the kingdom's strong recovery in 2022,
but growth will slow next year because of supply cuts agreed under OPEC+.
S&P said apart from the high oil prices, increased oil production and robust non-oil momentum also helped grow the economy this year.
The GDP increased for the sixth consecutive quarter, growing 8.6% year-on-year in the third quarter of 2022, stated the report citing the flash estimates published by General Authority for Statistics.
"We estimate a return to fiscal surpluses at 6.3% of GDP in 2022 and 3.5% in 2023. With the Brent oil price expected to average about $100/bbl in 2022 and remain elevated through 2023, we expect the current account to record significant surpluses this year and next," said S&P in its review.
The current account surplus could reach a very large surplus of 13.7% of GDP this year, the highest since 2013 and later it could moderate to 5.9% on average over 2023-2025 as oil prices taper, it added.
According to S&P, the government reforms and high oil prices are already creating significant investment opportunities for Saudi corporates.
Given the country's many government schemes, investment commitments, and private sector spending plans, its investment needs are significant. The banking sector will not be able to meet all needs despite its strong capitalization.
In such a scenario, the kingdom's capital markets will play a key role in funding not just private sector investments but also giga-projects such as Neom, the IPO for which is expected in 2024, it stated.
"We do not anticipate taking any immediate rating actions on Saudi corporates--even as they carve out significant capital spending budgets over the next two-to-five years--given their healthy balance sheets and strong liquidity. Over time, however, we will reassess our ratings as projects are executed because any rating upside would hinge on business trends improving, sustainable Ebitda growth, or stronger leverage metrics," said the ratings agency in its report.
According to S&P Global, the government plans to transform the financial, health care, housing and infrastructure sectors, among others. It also wants to focus on human capital and sustainability.
It launched the National Investment Strategy (NIS) in 2021 to empower investors, offer investment
opportunities, provide financing solutions, and enhance competitiveness. The NIS will launch
several initiatives over the coming years, with more than SR12 trillion to be invested in the national economy during 2021-2030.
The Saudi Arabian government is focused on economic reform. Its Vision 2030 plan sets out various paths to diversify away from hydrocarbons via programs, initiatives, and budgetary allocations.
This has led to significant project announcements across various corporate sectors.
The kingdom's sovereign wealth fund Public Investment Fund (PIF) has $620 billion of assets under management and is a catalyst for Saudi Arabia's economic transformation. The fund has identified 13 strategic sectors to prioritise to best support the national economy.
These are aerospace and defence; automotive; transport and logistics; food and agriculture; construction and building; components and services; entertainment, leisure, and sports; financial services; real estate; utilities and renewables; metals and mining; health care; consumer goods and retail; and telecom and media and technology.
To fulfil Vision 2030, PIF and its portfolio companies aim to help grow Saudi Arabia's annual non-oil GDP by about 7%.
According to S&P, the investment will likely remain fairly high as a percentage of GDP (gross fixed capital formation was 24% at Q2. Efforts to drive non-oil growth via foreign direct investment (FDI) and mega projects should also support GDP growth.
"We view the country's business fundamentals as supportive with relatively high oil prices yielding a revenue windfall and allowing the government the fiscal room to continue its large capex plans," it added.