Fitch downgrades Saudi Arabia; outlook still negative
Ratings agency Fitch has downgraded its assessment of Saudi Arabia’s creditworthiness, taking its rating down one notch to AA- from AA in response to lower oil prices, but it said a break in the Saudi riyal’s peg to the US dollar is “highly unlikely.”
The outlook remains negative, which means the next move is proportionately likely to be another cut. Fellow ratings agency Standard & Poor’s cut the country’s rating in February.
Fitch said:
The downward revision of our oil price assumptions for 2016 and 2017 to $35 per barrel and $45per barrel, respectively, has major negative implications for Saudi Arabia’s fiscal and external balances. The central government deficit widened to 14.8% of GDP in 2015, after a deficit of 2.3% in 2014 and continuous surpluses in previous years since 2010. Fitch forecasts the deficit-to-GDP ratio to narrow only marginally in 2016 and, on the back of a moderate recovery in oil prices, more substantially in 2017.
The ratings agency added that economic growth will slump from 3.4 per cent last year to 1.5 per cent in 2016.
It also expressed some concern about Saudi politics:
Control over economic policy making has been concentrated in the hands of Prince Mohamed bin Salman, the deputy crown prince and son of the king who is also chairman of the Council on Economic and Development Affairs as well as defence minister. This may have contributed to an acceleration of the economic policymaking process, but has also reduced the predictability of decision-making. The degree of support for this accumulation of power from other parts of the royal family is uncertain.
Read more: Saudi to tap global bond markets as oil fall hits finances (Nov 2015)
Good. Real good.