RiskCredit RiskSaudi Arabia’s credit rating downgraded

Saudi Arabia’s credit rating downgraded

Plans to lessen the kingdom state’s reliance on oil exports could prove too great a challenge for the government, suggests Fitch Ratings.

Credit rating agency (CRA) Fitch has downgraded its assessment of Saudi Arabia’s credit quality by one notch to A+ with a stable outlook, from AA- with a negative outlook.

Fitch based its decision on the deterioration of state finances due to low oil prices and doubts over whether the exporter can achieve its economic reform plans. Saudi Arabia is still the largest producer in the Organisation of Petroleum Exporting Countries (OPEC).

The CRA said that that although the sovereign state’s leadership was strongly committed to diversifying the economy beyond oil, that intention might not be enough.

“In Fitch’s view, the scale of the reform agenda risks overwhelming the government’s administrative capacity,” Fitch added.

Fitch added that proposed increases in domestic energy prices to reduce the government’s subsidy could heavily impact on energy-intensive industries, while higher fees for hiring foreign workers – part of an initiative to increase employment for Saudi citizens – could undermine large parts of the private sector.

Fitch’s downgrade brings its rating more in line with those of the other two major CRAs. Standard & Poor’s (S&P) rates the kingdom A-, two notches below Fitch, while Moody’s assessment is A1, level with Fitch. All three agencies now have stable outlooks on Saudi Arabian debt, suggesting there is no imminent risk of any further downgrade.

Responding to Fitch’s move, Saudi finance minister Mohammed al-Jadaan said the economy and the government’s balance sheet were fundamentally strong.

“The Saudi economy has structurally aligned itself to a lower oil price environment as reflected in a more sustainable balancing price for its fiscal and current accounts,” he said.

 

Related Articles

New accounting standards may bring treasury losses: S&P interview

Accounting New accounting standards may bring treasury losses: S&P interview

7m Victoria Beckett
Economic forecast sees no early respite for Greece

Credit Risk Economic forecast sees no early respite for Greece

11m Graham Buck
Non-payment risk rises in APAC

Asia Pacific Non-payment risk rises in APAC

11m Victoria Beckett
Banks must up capital reserves says BoE Financial Stability Report

Bank Relationships Banks must up capital reserves says BoE Financial Stability Report

12m Victoria Beckett
Atradius launches adaptable credit management portal

Credit Risk Atradius launches adaptable credit management portal

1y GTNews
Asian economies make strong start to 2017

Asia Pacific Asian economies make strong start to 2017

1y GTNews
China’s sovereign credit rating downgraded by Moody’s

China China’s sovereign credit rating downgraded by Moody’s

1y Graham Buck
Alitalia to seek a buyer following administration

Credit Risk Alitalia to seek a buyer following administration

1y Graham Buck