Cairo - Decypha: Saudi Arabia’s stable outlook and A1 rating is reinforced by the Kingdom’s robust, albeit weakening, fiscal position, according to a report by Moody’s Investors Service.
High dependence on oil, rigid government spending structure, and government revenues dependent on oil prices are some of the key credit challenges facing the Gulf nation.
"Although the fall in oil prices pushed Saudi Arabia's budget balance into large deficits, eroding the government's reserves and prompting the government to issue bonds on the international market for the first time in 2016, the country's fiscal position remains strong," said Steffen Dyck, a Moody's Senior Credit Officer and co-author of the report.
Geopolitical risk, due in part to the regional instability and they country’s strategic rivalry with Iran, also affects overall rating.
Some of Moody’s predictions for 2017 include GDP contraction of 0.2% and a sizeable budget deficit of 10.5% of GDP in 2017 and narrowing to 9.2% in 2018.
Moody’s expects implementation of Saudi Arabia’s ambitious and comprehensive reforms to be challenging, according to the report.
The government aims to diversify its revenue sources by 2020, with oil and gas revenue declining from 72% of revenues in 2015 to 54% in 2020, predicted Moody’s
The state has to incorporate more external debt due in part to increase in gross funding requirements with sizeable fiscal deficits to become the norm.
Saudi Arabia’s stable outlook assessment is a reflection of a broadly balanced credit profile, with volatile oil prices and the hydrocarbon sector potential risks to the stable credit profile. The current stable credit profile can be negatively impacted if oil prices took another plunge or loosening fiscal consolidation.
Some potential credit improving development include the full implementation of planned fiscal, economic reforms, and sustainable structure reforms – leading to smaller deficits and lower debt burden.
By Decypha Editorial Team
