Riyadh – Mubasher: Moody’s Investors Services has assigned an A1 rating to the global notes issued by the Saudi government as part of the global medium-term notes (MTN) programme.
“The senior unsecured debt ratings mirror the government of Saudi Arabia's
A1 long-term issuer rating,” Moody’s said in a statement, noting that the notes “are direct, unconditional, and unsecured obligations of the [Kingdom’s government], and pari passu with all other unsecured external debt obligations of the issuer.”
The A1 rating with a stable long-term rating shows Saudi Arabia’s economic and institutional strength as well as its “moderate susceptibility to event risks”.
Saudi Arabia had previously held a strong balance position prior to the sharp drop in oil prices since mid-2014, which over the past few years has eroded the country’s reserves, resulting in a deficit and prompting the government to issue bonds on the international market for the first time in 2016.
Despite these factors, Moody’s still sees Saudi Arabia’s financial position as “strong”.
With its varying and large amounts of liquidity resources, the ratings agency does not expect the Saudi government to encounter problems in financing its fiscal deficits.
Although foreign exchange reserves have fallen due to the large current deficits, which emerged since 2015, reserves have remained “sizeable” at $494 billion, representing around 74% of Saudi Arabia’s gross domestic product (GDP) as of July 2017, the report showed.
“External debt is rising, but from a low base, and Moody's expects annual external debt repayments to remain significantly below the critical threshold of 100% of foreign exchange reserves over the coming years,” the investor’s service firm highlighted.
Historically, the Saudi kingdom has enjoyed strong growth rates, but following the decline in oil prices, on which its budget is heavily reliant, the country’s real GDP growth has slowed on the back of lower oil prices and oil production cuts.
“Low growth illustrates both the ongoing economic pressures on economic strength from the oil price shock, but also the fiscal challenges given the plan to get to a balanced budget by 2020,” Moody’s noted, indicating that “significant implementation challenges remain.”
The Saudi government has announced a wide-ranging development scheme for its Vision 2030, which mainly entails reducing the country’s reliance on oil by diversifying its income resources.
Despite this, “Moody's thinks there is a risk that the reform progress might slow down in a scenario of higher oil prices and/or growing public discontent”, according to the report.
In October 2016, the Kingdom raised $17.5 billion (SAR 65.6 billion) from its first international bond offering. In April, the government issued five- and 10-year Islamic bonds and successfully raised $9 billion.
Locally, the government issued SAR-denominated bonds worth SAR 37 billion over the past three months.
Saudi Arabia’s budget deficit is projected to reach SAR 198 billion ($53 billion) in 2017.
Last week, the Saudi Ministry of Finance (MoF) said it had completed the pricing of the second international bond issue at SAR 150 billion ($40 billion) in orders from domestic and international investors.
The value of the kingdom’s second issue is SAR 46.9 billion ($12.5 billion). The MoF expects the issue to be settled by 4 October or around that time.
