Riyadh – Mubasher: The possible stability of oil prices at $53 per barrel will lead the fiscal deficit to settle at 4.9% of GDP in 2020, according to BofA Merrill Lynch Global Research report.

Foreign reserves at Saudi Arabian Monetary Agency (SAMA) will reach 51% of the gross domestic product (GDP) and government debt will stand at 29% of GDP.

Should oil prices stabilise at $53 per barrel, foreign reserves are likely to continue falling at a slower pace and after stabilizing during 2018 on the back of MSCI emerging markets and oil sector privatization foreign inflow, the report added.

If oil prices average $40 per barrel, the deficit would close to 10% of GDP, foreign reserves could half to 35% of GDP with no sign of stabilization, and capital outflows could accelerate.

The potential MSCI EM watch list announcement in mid-June and possible Aramco IPO in 2018 are expected to cause a fundamental transformation of the economy's structure and growth model, alter capital markets and support diversification efforts.

Saudi banks are the best capitalized in the world, with relatively good NPL (non-performing loans) coverage which have room to move upwards though, in addition to strong liquidity, Merrill Lynch said.

The deterioration in asset quality has already been reflected in the Saudi Bank's consensus earnings estimates.

The Saudi government is expected to keep prioritizing downstream expansion into refining and petrochemicals.