Moody’s cuts Saudi rating on lower oil prices

Moody’s Investors Service downgraded the long-term issuer rating on Saudi Arabia, the world’s biggest oil exporter, to A1 from Aa3 with a stable outlook as lower oil prices may lead to a "material deterioration" in the nation’s credit profile.

"Lower oil prices have led to a material deterioration in Saudi Arabia’s credit profile," the ratings agency said in a statement Saturday.

“A combination of lower growth, higher debt levels and smaller domestic and external buffers leave the Kingdom less well positioned to weather future shocks.”

The service has also downgraded long term foreign currency deposit ceilings and bond from A1 to Aa3.

However, Saudi’s credit profile remains very strong compared with the majority of Moody’s rated sovereigns, it said.

It expects a gradual price recovery in crude oil prices which should put Saudi’s nominal GDP back to pre-oil price shock level by 2019.

Yet the drastic drop in oil prices in 2014 has “materially undermined the kingdom’s credit profile”, it said. Nominal GDP has fallen 13.3 percent in 2015 and Moody further expects a 5 percent reduction in 2016.

The rating agency estimates a state deficit of 9.5 percent between 2016 -2020 requiring a cumulative financing of SAR 1.2 trillion i.e. almost 50 percent of nominal GDP of 2015.

Moody’s estimates a continuing current account deficit to widen by almost 12 percent of GDP in 2016, before gradually improving in the next few years.

The agency expects number of challenges for National Transformation Program plan citing tension between desire for GDP growth versus job creation and fiscal consolidation measures interacting simultaneously.

Write to Farha Abdelhaq at farha.abdelhaq@argaamnews.com