S&P Global Ratings has affirmed its 'A-/A-2' unsolicited long- and short-term foreign and local currency sovereign credit ratings on Saudi Arabia with a stable outlook.

 

The ratings are 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 statement from the top ratings agency.

 

The S&P ratings are supported by the kingdom's strong external and fiscal stock positions, which the agency expects, 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.

 

"In our view, recent shifts in Saudi Arabia's power structures and societal norms, alongside various regional stresses, could increase the risk of policy mistakes that could result in increased domestic and geopolitical tensions, deterring investors, or delaying the consolidation of the kingdom's public finances," stated S&P in its review.

 

"However, we also consider that these structural reforms could empower Saudi citizens and make Saudi Arabia more attractive to investors over the medium term, as the authorities intend," it noted. 

 

The ratings agency said it expects the Saudi real economic growth to be broadly flat in 2017 and to pick up only slowly thereafter as oil production cuts and fiscal consolidation dampen domestic demand.

 

"We estimate trend growth in real per capita GDP of about 0.7 per cent during 2011-2020, at the lower end of the range for peers (1 to 4 per cent) that display similar levels of development."

 

"We could raise the ratings if Saudi Arabia's economic growth prospects improved markedly beyond our current assumptions," it stated.

 

The reason for the deviation is the significant changes to the authorities' governing arrangements. The next scheduled rating publication on the sovereign rating of Saudi Arabia will be on or before April 6, 2018.

 

However, the agency warned that it could lower ratings if any further deterioration was noticed in Saudi Arabia's public finances. 

 

"Fiscal weakening could entail prolonged double-digit central government deficits as a percentage of GDP, a quicker drawdown of fiscal assets, or an unexpected materialization of contingent liabilities. The ratings could also come under pressure if we observed a significant increase in domestic or regional political instability as a result of the increasing centralization of power," it stated.-TradeArabia News Service