Saudi Arabia’s credit rating outlook was raised to “positive” from “stable” by Standard & Poor’s because of an improved outlook for growth in the Arab world’s biggest economy.
Saudi Arabia’s AA- rating, the fourth-highest investment grade, may be raised in the next 24 months if economic growth “remains strong,” the rating company said in a statement. It was the first change in the country’s outlook by S&P since 2007.
“Growth fundamentals are strengthening in Saudi Arabia,” the rating company said in a statement. “The economy has expanded strongly and steadily.”
The move is the second by an international ratings company in less than three months, after Fitch Ratings revised the kingdom’s outlook to positive on March 20. The Saudi economy was the third-best performer among G-20 nations behind China and India between 2008 and 2012, according to the International Monetary Fund. Finance Minister Ibrahim al-Assaf yesterday said growth will exceed the IMF’s 4.4 percent forecast for 2013.
A government spending program of more than $500 billion has sparked record sales of Islamic bonds. The yield on $1.25 billion of sukuk issued by state-owned utility Saudi Electricity Co. due in 2022 has tumbled 64 basis points over the past year to 3.44 percent today, according to data compiled by Bloomberg.
“Across the board we have seen a drop in borrowing costs, linked to the strong macroeconomic fundamentals and liquidity, particularly in the sukuk market,” said Monica Malik, Dubai-based chief economist at investment bank EFG-Hermes. “We do not expect to see any major move as a result. Nevertheless, the upgrade is a positive confirmation of the improved fundamentals.”
While economic growth may slow this year due to lower oil output, the investment bank expects “non-oil GDP growth to remain robust at 6.1 percent,” helped by consumer spending and public investments, she said.