May 08 2012
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S&P affirms Saudi Arabia's sound ratings
"The ratings on Saudi Arabia are supported by our view of the government's very strong external and fiscal positions, which have been built over a number of years. By prudent macroeconomic management, the government has reduced its general government debt, generating additional fiscal space for countercyclical policies," S&P said.
It noted that Saudi Arabia is making tangible progress in transparency and data availability, most recently with the inaugural publication of data on the country's international investment position.
Moreover, Saudi Arabia is riding the current oil boom wave from a position of strength, it said, thanks to a consolidation of economic policies that have built up a buffer to adverse shocks while also creating fiscal space to address socioeconomic and infrastructure needs.
S&P further said the Kingdom's gross general government debt has declined to about 7 percent of GDP in 2011 from 82 percent in 2003. Foreign currency assets under management of the Saudi Arabia Monetary Agency (SAMA) have increased significantly to around $570 billion in March 2012 (covering 26 months of current account payments) from around $100 billion in 2003 (covering 14 months of current account payments).
In 2011, buoyancy in both the oil and non-oil sectors contributed to an increase in economic growth to 6.8 percent from 4.0 percent in 2010. A substantial rise in the government's oil revenues was more than sufficient to cover a record high 25 percent nominal increase in expenditures, while the fiscal outcome for the year was still a surplus of 14.5 percent of GDP. The need to expedite measures to address socioeconomic challenges including unemployment and housing was underscored last year with the announcement of fiscal packages of 25 percent of 2010 GDP.
The packages included a government housing program equivalent to 15 percent of GDP to provide 500,000 affordable housing units. The funding for this has already been earmarked from the 2011 fiscal surplus.
"We expect strong economic growth to continue, estimated at 6 percent this year, based on further increases in oil production and positive spillovers into the private sector from the deployment of fiscal stimulus. We expect the fiscal position to post a surplus of 16 percent, assuming an average oil price of around $100 per barrel in 2012," S&P said. The current account surplus is estimated to moderate slightly from last year to around 23 percent of GDP, it added.
Besides, inflation will remain manageable at around 5 percent as a leveling off in the cost of imports will partly offset pressures stemming from housing costs.
Rapid population growth in Saudi Arabia has contributed to half of the population now being under 21, presenting the government with the challenge of youth unemployment and the need to create many more jobs.
At end-2010, the labor participation rate for Saudis was about 37 percent, and for Saudi women it was particularly low at less than 12 percent.
The report noted that Saudis account for only 11 percent of private sector jobs, with the rest filled by expatriates, adding that unemployment remains a top priority for the government.
Regionally, S&P said Saudi Arabia will continue to spearhead efforts to strengthen ties between the Gulf Cooperation Council countries, with its calls to form a union.
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