Saudi Arabias credit rating stable, confidence rising

JEDDAH — Moody’s says in its annual credit analysis report on Saudi Arabia that the Kingdom’s (A1 stable) credit strengths include a strong fiscal position; substantial external liquidity buffers; a large stock of proved oil reserves combined with low extraction costs; and prudent financial system regulation.

“The stable outlook reflects our view that risks to Saudi Arabia's credit profile are broadly balanced. The government’s reform program, including the plans to balance the fiscal budget by 2023, could over time offer a route back to a higher rating level,” Moody’s Investors Service said on Monday.

This credit analysis elaborates on Saudi Arabia’s credit profile in terms of economic strength, institutional strength, fiscal strength and susceptibility to event risk, which are the four main analytic factors in our Sovereign Bond Rating methodology.

The report noted Saudi Arabia’s strong growth in oil revenues up until 2014 allowed the government to build up a sizeable asset cushion and sharply reduce debt. “Although the decline in oil prices since then has pushed the budget balance into deficit, the government's overall balance sheet remains robust,” it said.

It also noted the country’s “increasing confidence that structural reforms aimed at reducing the reliance of Saudi Arabia’s economy and public finances on oil revenues are more effective than in our baseline scenario would be credit positive.”

The overall real GDP growth will be below 2% during 2018-2022, it added.

Based on our assumption that the Brent oil price averages $60 per barrel in 2018, Moody’s forecast that the budget deficit will narrow more than assumed in the budget plan to around SR160 billion, or 5.8% of GDP, declining further to 5.2% in 2019.

With a nominal GDP of $684 billion in 2017, Saudi Arabia’s economy is more than three times the size of the median for A-rated countries, Moody’s said. — SG