Saudi Arabia's economy is expected to grow at an average rate of around 3 per cent during 2021-24, nearly double the average during 2015-19 (1.6 per cent) but lower than the 4.1 per cent growth rate recorded during 2005-14, Moody's Investors Service said in an annual report.

Moody’s expects real GDP to decline by 4.5 per cent in 2020 as a result of the dual shock triggered by the coronavirus pandemic.

The shock to the business and consumer activity in the non-oil sector, stemming from the restrictions out in place by the government to control the spread of the pandemic, will contribute to the non-oil GDP contraction of around 4 per cent of GDP after relatively strong non-oil growth of 3.3 per cent in 2019. Moody’s expects higher fiscal deficits in the next few years will increase government debt above 35 per cent of GDP from 22.8 per cent at the end of 2019.

Saudi Arabia's credit strengths include a robust but deteriorating government balance sheet, underpinned by still-moderate debt levels and substantial fiscal and foreign currency buffers, Moody's Investors Service said. A large stock of proved hydrocarbon reserves with low extraction costs and prudent financial system regulation support the sovereign credit profile.

 “The Saudi government has made some initial progress in its ambitious and comprehensive reform plans to diversify fiscal revenue streams and the economy away from hydrocarbons,” said Alexander Perjessy, a Moody's Vice President - Senior Analyst. “However, their full implementation will be challenging and their positive impact will only be felt over the longer term.”

Saudi Arabia's credit challenges include its economic and fiscal exposures to declines in global oil demand and prices, such as those in 2020, and socio-economic challenges posed by rapid population growth and elevated unemployment.

The negative outlook reflects increased risks to fiscal strength stemming from the shock to global oil demand and prices triggered by the coronavirus pandemic and uncertainty regarding the degree to which the government will be able to offset its oil revenue losses and stabilise its debt burden and assets in the medium-term, said the report.

Evidence that the government is able to contain the deterioration in its balance sheet and stabilise and ultimately reverse the debt trajectory through implementation of additional fiscal consolidation measures, possibly supported by a recovery in oil prices, would likely lead to the outlook being stabilised, it said.