Mubasher: Moody’s Investors Service said that the Saudi Arabian cabinet's approval of the National Transformation Program 2020 (NTP) is credit positive for both the sovereign and banks as it provides a credible path to achieving fiscal and economic diversification away from oil, according to a recent report.
The Saudi government aims to narrow its reliance on oil revenues, and make government finances more resistant to future fluctuations in oil prices.
"We also expect the development of the non-oil economy to benefit Saudi banks' revenues in the next five years because credit growth in Saudi Arabia has historically been correlated to the non-oil GDP growth," said Vice President -- Senior Credit Officer and co-author of Moody’s report Steffen Dyck.
The five-year program which starts in 2016 consists of 178 strategic objectives, with nearly 400 indicators and 350 targets used to define the 2020 goals and measure progress.
Moody's also expects a number of initiatives for banks to accelerate a diversification of their loan portfolios into real estate and lending to small- and medium-sized enterprises (SMEs), the report noted.
"Over the short term, we can expect that the plan to further cut subsidies and collect a number of new taxes, which typically have more immediate effects than structural reforms, can have a positive effect on government revenues and liquidity placed in the domestic banking system," said Vice President -- Senior Credit Officer and co-author of the report Olivier Panis.
Meanwhile, Moody's expects in the longer term that a lower fiscal dependence on oil revenues and a more diversified economy can reduce volatility in the kingdom’s economic growth, and also lead to more predictable government revenues and spending, amid business environment that is less exposed to event risk.
