Fitch Ratings has affirmed last week Saudi Arabia's Long-term local and foreign currency Issuer Default Ratings (IDR) at 'AA-', with Stable Outlooks. The Country Ceiling has been affirmed at 'AA' and the Short-term foreign currency IDR at 'F1+'. "Soaring oil revenues are enabling Saudi Arabia to invest and reform to address structural challenges while continuing to build up savings," said Charles Seville, Director in Fitch's Sovereign team. Forecasting that the economy would grow by 4 percent in 2012, Fitch said that though inflation is 5 percent and rising, the economy is far from overheating, with credit growth under control. Real GDP growth rebounded to 6.8 percent in 2011, the highest since 2003, driven by a boost to oil output and fiscal stimulus. The general government recorded an increased surplus of 14 percent of GDP in 2011, as growth in oil revenues outweighed the impact of a 25 percent rise in spending. Fitch forecast a general government fiscal surplus of at least 12 percent of GDP in 2012. Government deposits at the Saudi Arabian Monetary Agency (SAMA) rose by $52 billion, or 9 percent of GDP in 2011. SAMA's international reserves rose by $108 billion to $568 billion over the same period, and will likely exceed $700 billion by end-2013, Fitch said. Similarly, reports by financial institutions like Standard Chartered Bank, National Commercial Bank, Al Rajhi Capital and others showed sustained growth, kudos to the Kingdom's economic management by Ministers of Finance Ibrahim Al-Assaf, of Economy and Planning Muhammed Al-Jasser and the Governor of the Saudi Arabian Monetary Agency (SAMA) Fahad Abdullah Al Mubarak. Even Christine Lagarde, Managing Director of the International Monetary Fund (IMF), following her recent visit to Riyadh got into the act. "The Saudi economy," she said in a statement, "has navigated the global financial crisis well. Strong economic policies in the preceding years, together with prudent supervision of the financial sector, allowed the government to boost expenditure to support demand during the crisis, and to limit the direct impact on the financial system. Saudi Arabia's policies had an important positive impact on the region and the global economy. Saudi Arabia has made significant progress in social development and is now close to the G20 average for most indicators." The fiscal euphoria which some analysts are trumpeting are based on the record oil revenues which if sustained at even lower than current levels is bound to lead to an actual budget surplus for 2012. The total 2012 budget amounts to SR1.392 trillion ($371.2 billion) of which total expenditure is projected at SR690 billion ($184 billion) and total revenues are projected at SR702 billion ($187.2 billion). This is based on an oil price of $74 per barrel. The Kingdom's average crude production for January 2012 is estimated at 9.9mbpd, according to a Report by Al Rajhi Capital, albeit its total production capacity is 12.5 mbpd. Crude oil prices for May delivery hovered between $103.02 per barrel on the New York Mercantile Exchange in March 2012 to $122.88 per barrel for Brent Crude on the ICE Futures Exchange. The oil price windfall has allowed the Kingdom to embark on an ambitious infrastructure, education, housing and SME spending. New development projects in the 2012 budget, for instance, are allocated SR265 billion with education, transport and health infrastructure getting the bulk of the expenditure. GDP growth projections for 2012 have been revised upwards from 2.9 percent to 4.7 percent. The foreign assets of SAMA similarly increased by SR47 billion to SR2.104 trillion in February. However, Lagarde maintained that challenges for the Saudi economy still remain. It is the management of these challenges in the wake of oil price windfalls that will be the acid test for 2012 and well beyond. __
