Saudi Arabia’s credit rating downgraded by Moody’s
Moody’s has downgraded Saudi Arabia’s credit rating, underlining deepening concern over the country’s precarious fiscal position and ability to diversify away from oil revenues.
The negative ratings action, the first since Moody’s began rating the kingdom two decades ago, follows similar downgrades by Standard & Poor’s and Fitch.
“A combination of lower growth, higher debt and smaller domestic and external buffers leaves the kingdom less well positioned to weather future shocks,” the rating agency said late on Saturday. It cut Saudi’s long-term rating from a “very low” Aa3 to the “low” A1, on a par with Japan. It said the outlook for Saudi was stable.
Moody’s predicted Saudi’s nominal gross domestic product would fall 5 per cent this year due to the effects of the oil price slump, only returning to pre-shock levels by 2019.
It said real growth over the next five years would average 2 per cent, below the 5 per cent level recorded between 2011-15, and the 2016 fiscal deficit would be roughly on a par with last year’s 14.9 per cent of GDP.
The Saudi government is therefore likely to raise $324bn — equivalent to 50 per cent of nominal GDP in 2015 — for the cumulative financing of a forecast average deficit of 9.5 per cent of GDP between 2016-20.
Mohammed bin Salman, Saudi’s powerful deputy crown prince, this month unveiled an ambitious plan to diversify the economy away from hydrocarbons and create jobs.
Moody’s said the “Vision 2030” programme could help revive the kingdom’s credit profile, but added that “the plans are at an early stage of development and their impact remains uncertain”.
It also noted an inherent tension in a programme that seeks to sustain growth and create jobs while cutting state spending and warned “the fiscal reforms needed to broaden the kingdom’s revenue base raise significant social stability considerations”.
Bankers believe the kingdom is likely to start issuing international bonds this year, after agreeing a $10bn loan with lenders, as it seeks to slow a sharp fall in its foreign reserves to $576bn. Moody’s forecast reserves declining to $460bn by 2019.
Total external debt is expected to rise to 30 per cent of GDP by 2018 and to about 40 per cent by the end of the decade, Moody’s estimated.