Saudi Arabia's plan to reshape its oil-dependent economy is credit-positive as it presents a credible path to achieving fiscal and economic diversification, Moody's Investors Service said. The kingdom recently unveiled details of plans to more than triple its non-oil revenue by 2020 while cutting state handouts and subsidies as part of an initiative called the National Transformation Program—a key part of a roadmap for long-term economic reform known as Vision 2030. However, "past experience suggests that the government may face ... difficulties in implementing reforms." Still, even if Saudi Arabia implements part of the NTP, the plan will benefit the sovereign's credit quality by supporting its fiscal and economic strength, the rating agency said. The five-year plan, which was approved by the Saudi cabinet last week, will cost about SR270 billion ($72 billion) to implement between now and 2020, a period in which Riyadh expects non-oil revenues to more than triple to SR530 billion. As part of the NTP, the government also plans to adopt measures such as the reduction of spending on wages and salaries, cutting its civil service workforce and slashing fuel, water and electricity subsidies—which could help the kingdom save as much as SR200 billion by 2020. Moody's noted that the rise in non-oil revenue will likely be through measures such as increased taxes on tobacco and sugary drinks and other sales taxes, higher government fines and fees, and a value added tax. This will help reduce the government's reliance on oil, which has historically accounted for around 90% of government revenue, and make government finances more resistant to future oil-price fluctuations, Moody's said. "Moreover, because economic growth will remain largely driven by government spending, a broader revenue base will make the economy more resilient to future oil price swings," it added. A sharp fall in the price of oil has weighed heavily on the kingdom's finances, forcing it to run a record budget deficit of about $98 billion in 2015. It has also dipped into its foreign-exchange reserves, which fell to about $581 billion at the end of April from a peak of $746 billion in August 2014. The International Monetary Fund expects Saudi economic growth to slow this year as cheap oil continues to strain the kingdom's economy. But it has also praised the country's efforts to promote changes and reduce its dependence on crude sales. — SG/Agencies
