S&P downgrades Saudi Arabia’s credit rating 2 further notches
Standard & Poor’s (S&P) has further cut its sovereign credit rating for Saudi Arabia by two levels, saying the current oil price slide has a dramatic impact on the oil-rich kingdom’s fiscal balance.
In a statement released on Wednesday, the rating agency dropped the kingdom’s long-term foreign and local currency sovereign credit to A-, a two-notch downgrade from its previous rating of A+ as oil prices continued to tumble.
“Oil prices have fallen further since our last review of Saudi Arabia in October 2015, and we have cut our oil price assumptions for 2016-2019 by about $20 per barrel. In our view, the decline in oil prices will have a marked and lasting impact on Saudi Arabia’s fiscal and economic indicators given its high dependence on oil,” said S&P in the statement.
International oil prices are slashed by some 70 percent from peaks above $100 per barrel in mid-2014, pummeling the finances of oil-exporting nations, including Saudi Arabia, the biggest economy among Arab states and the largest oil exporter in the world, followed by Russia and Kuwait.
The rating agency further said that the outlook on the A- investment grade credit rating was stable, which “reflects our expectation that the Saudi Arabian authorities will take steps to prevent any further deterioration in the government’s fiscal position beyond our current expectations.”
Saudi Arabia has forecast a government deficit of about 13 percent of GDP in 2016, lower than the 15 percent deficit in 2015, on double digit expected declines in revenues and expenditures.
In its October statement, S&P had cited Saudi “high reliance on hydrocarbon revenues and inflexible current expenditures” as country’s vulnerabilities in its public finances.
The crude price decline has strongly influenced the kingdom’s economy since oil sales account for about 80 percent of its revenues. It has prompted the government to cut spending, delay projects, and sell bonds.
The kingdom’s finances are depleting at an alarming rate due to continued subsidies, handouts to public sector workers in order to keep dissent in check, the deadly and costly aggression against Yemen, and a patronage system that has expanded over years.
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