Fitch cuts Saudi Arabia credit rating

Fitch Ratings downgraded Saudi Arabia's credit rating by one notch to reflect the country’s deteriorating public and external balance sheets, wider-than-expected fiscal deficit in 2016 and concerns over the extent to which the government would be able to implement its reforms program.

The kingdom’s long-term foreign and local currency issuer default ratings (IDRs) have been revised down to “A+” from “AA-,” the agency said on Wednesday. The outlook was stable.

Saudi Arabia’s finance ministry said Fitch’s downgrade was not surprising as it was based on a quantitative, number-driven analysis.

Meanwhile, the ministry confirmed that revenues for the fiscal year 2016 were higher than expected at SAR 528 billion, of which SAR 199 billion were contributed by the kingdom's non-oil sector.

“The fundamentals of the Saudi economy remain strong as the Kingdom’s balance sheet remains strong with SAMA’s FX assets estimated at 84 percent of GDP, the third largest in GDP terms globally. General government assets are considerably above 100 percent of GDP,” Finance Minister Mohammed Al-Jadaan said.

According to Fitch, government deposits declined by SAR 242 billion to SAR 841 billion, the rating agency noted, adding that the general government debt rose to 9.7 percent of GDP, from 4 percent in 2015.

The weakening government balance is reflected in the budget deficit of SAR 416 billion or 17.3 percent of GDP in 2016, up from SAR 362 billion in 2015, it added.

“The government has already taken several fiscal consolidation measures, including cuts in civil service allowances and a hike in administered utility prices,” the agency said.

It, however, added that all the measures are unlikely to be achieved as the scale of the reform agenda risks overwhelming the government's administrative capacity.

“In addition, the economy may not be able to absorb rises in administered energy prices, which could severely affect energy-intensive industries, or the planned expat levies, which could undermine large parts of the domestic private sector,” Fitch said.