Saudi Arabia needs oil price at $85

While a new Moody’s Investors Services says that Saudi Arabia’s credit outlook is stable and buffered by a strong fiscal position, the International Monetary Fund’s regional director believes that that the kingdom needs oil prices to be at least $85 per barrel this year to be able to balance its budget.

In its annual credit analysis on Saudi Arabia, Moody’s noted that the kingdom’s credit strengths include a strong fiscal position, significant liquidity buffers and a sizable stock of oil reserves combined with low extraction costs.

Moody’s rates Saudi Arabia as A1 stable, an outlook it says reflects its view that risks to the kingdom’s risks are broadly balanced.

In the report, Moody’s noted that growth in oil revenues before 2014 gave the Saudi government an opportunity to build up a significant asset cushion and reduce debt.

While declining oil prices since 2014 have pushed the budget balance into deficit, its overall balance sheet remains robust, the report noted.

Additionally, the report predicted that overall GDP growth will remain below 2 percent between 2018 and 2022, compared to the 4.6 growth recorded between 2011 and 2016.

Moody’s also forecasts that the government debt burden will continue to increase as a share of GDP from 17.3 percent at the end of 2017, but will peak below 30 percent over the course of the next five years.

Based on the assumption that Brent oil prices will average $60 per barrel in 2018, Moody’s also predicts that the budget deficit will narrow to about 5.8 percent of GDP in 2018, and then to 5.2 percent in 2019.

Earlier on Wednesday, Al-Jadaan said that the country had a projected budget deficit of 195 billion riyals ($52 billion) in 2018, or 7.3 percent of its gross domestic product (GDP), down from 230 billion riyals last year.

Speaking at a conference in Riyadh, the minister said first-quarter fiscal results showed progress in increasing non-oil revenues, Reuters reported.

Vision 2030 has a goal to increase non-oil government revenue from 163 billion Saudi Arabian riyals (SAR), or $43.4 billion, to $1 trillion SAR by 2030.

Asked whether higher oil prices could affect the strategy of Vision 2030, Al-Jadaan said

“Oil prices are a market dynamic. I don’t think it’s up to oil producers to set the price otherwise we would not have seen prices below $30 a few years ago. It’s a market dynamic (based on) supply and demand and we think demand is going to continue,” he said.

“Oil is going to be here for an extended period of time and we think a balanced oil price is right for producers and consumers,” he said.

The Saudi government has projected a budget deficit of $2 billion in 2018, which it plans to balance by 2023.