Saudi currency sovereign ratings get stable outlook
RIYADH, October 9, 2017
S&P Global has affirmed 'A-/A-2' long- and short-term foreign and local currency sovereign ratings on Saudi Arabia and has given the kingdom a stable outlook.
The outlook is based on expectation that the Saudi authorities will take steps to consolidate public finances and maintain government liquid assets close to 100 per cent of GDP over the next two years, said the international ratings agency in its latest review.
The ratings on Saudi Arabia are supported by its strong external and fiscal stock positions, which we expect it will maintain despite large central government deficits.
The ratings are constrained by weak economic growth, limited public sector transparency, and limited monetary policy flexibility, stated S&P Global.
"We could lower our ratings if we observed further deterioration in Saudi Arabia's public finances. Fiscal weakening could entail prolonged double-digit deficits as a percentage of GDP, a quicker drawdown of fiscal assets, or an unexpected materialization of contingent liabilities," said the ratings agency in its review.
The ratings could also come under pressure if we observed a significant increase in domestic or regional political instability, it added.
However, S&P Global also pointed out that it could up the ratings if Saudi Arabia's economic growth prospects improved markedly beyond its current assumptions.
We expect the oil sector's contribution to real economic growth in 2017 and 2018 to
be largely flat. Non-oil sector growth will likely remain the economic driver but at
a subdued one per cent in 2017 and 2018.
Our GDP per capita estimate for 2017 is $21,200, supported by the slowdown in population growth from close to 3 per cent on average in 2011- 2015, to about one per cent in 2016-2017.
In our view, the weak population growth highlights the economic downturn in the kingdom, along with reduced job prospects for foreign workers.
The Saudi Council of Ministers announced the highly ambitious National Transformation
Program (NTP) in June last year.
The program provides more substance to the Vision 2030 announcement. The NTP provides more detailed targets for the next four years, laying out 178 strategic objectives with more than 340 indicators and targets set for 24 ministries and government entities.
In our view, the program could result in accelerated economic growth and an overall rebalancing of the economy, said the ratings agency in its report.
"We expect real economic growth to be broadly flat in 2017 and only pick up slowly
thereafter as oil production cuts and fiscal consolidation dampen domestic demand," it added.-TradeArabia News Service
