Fitch Ratings has downgraded Saudi Arabia's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'A' from 'A+' with a stable outlook.

The downgrade reflects rising geopolitical and military tensions in the Gulf region, vulnerability of Saudi Arabia's economic infrastructure and continued deterioration in the kingdom’s fiscal and external balance sheets, Fitch said.

Earlier in September, attacks on Aramco facilities in Abqaiq and Khurais cut Saudi Aramco company's crude oil supply by around 5.7 million barrels per day or about 50 percent of its output.

Saudi Arabian energy minister Prince Abdulaziz bin Salman said that the attacks on the kingdom's oil facilities have partially halted crude and gas production from the world's top oil exporter.

Reuters reported last week that Saudi Aramco has restored oil output earlier than expected.

“Although oil production was restored fully by end-September, we believe that there is a risk of further attacks on Saudi Arabia, which could result in economic damage,” Fitch said.

“We have revised our assessment of the vulnerability of Saudi Arabia's economic infrastructure to regional military threats as a result of the most recent attack,” it added.

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Fitch forecasts a fiscal deficit of 6.7 percent of GDP for the Kingdom in 2019, from 5.9 percent in 2018 “reflecting an underlying loosening of fiscal policy in 2018-2019, and lower average oil prices and production.”

The ratings agency assumes Brent oil prices will average $65 per barrel in 2019 from $71.6 per barrel in 2018 and that Saudi Arabia's oil production will average 9.7 million barrel per day from 10.3 million barrel per day in 2018.

“Saudi Arabian Oil Company (Saudi Aramco, A+/Stable) has already restored or substituted the lost production, demonstrating resilience to the attacks. This reflects both the ability to implement rapid repairs and significant spare oil production and processing capacity before the attack,” the agency noted.

S&P Global Ratings affirmed earlier this week its ‘A-/A-2’ long and short-term sovereign credit ratings on Saudi Arabia with a stable outlook. Moody’s kept its rating for Saudi Arabia at the A1 level with a stable outlook in its latest report in September.

(Writing by Gerard Aoun, editing by Seban Scaria)

(gerard.aoun@refinitiv.com)

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