Fitch ratings Ltd. downgraded Saudi Arabia from AA to AA- on Tuesday, citing downwardly revised oil prices for 2016 and 2017.
According to the agency press release “the downward revision of our oil price assumptions for 2016 and 2017” to $35 a barrel and $45 a barrel that is obtainable in current situation, “has major negative implications for Saudi Arabia’s fiscal and external balances.”
“The central government deficit widened to 14.8% of GDP in 2015, after a deficit of 2.3% in 2014 and continuous surpluses in previous years since 2010. Fitch forecasts the deficit-to-GDP ratio to narrow only marginally in 2016 and, on the back of a moderate recovery in oil prices, more substantially in 2017”.
“A large share of the government’s financing needs will be funded by disposing of foreign financial assets, but the government has also started raising debt domestically. It is also in negotiations on a syndicated loan of up to USD10bn and is planning a first Eurobond issue later this year. This should push the general government debt-to-GDP ratio to 9.4% of GDP in 2017 from 1.5% in 2014, which will still be low compared with peers (36.9%)”.
This is the third rating agency downgrading the Kingdom’s credit within a year after Standard & Poor and Moody’s investors Service cut the nation’s rating.
