Moody's Investors Service affirmed on Friday Saudi Arabia's A1 rating and stable outlook, which is supported by a strong but weakening fiscal position, driven by the kingdom's substantial hydrocarbon reserves at low production costs, and high levels of external liquidity.
Meanwhile, high dependence on oil remains a key credit challenge, along with a rigid government spending structure, vulnerable revenues due to oil price volatility, and geopolitical risks, the ratings agency said.
The stable outlook reflects that risks to Saudi Arabia's credit profile are broadly balanced.
"Although the fall in oil prices pushed Saudi Arabia's budget balance into large deficits, eroding the government's reserves and prompting the government to issue bonds on the international market for the first time in 2016, the country's fiscal position remains strong," said Steffen Dyck, a Moody's senior credit officer.
Saudi Arabia’s real GDP is projected to edge down 0.2 percent this year, hurt by lower oil production following the OPEC output cut deal last November.
The kingdom is likely to post a sizeable budget deficit of 10.5 percent of GDP in 2017 and of 9.2 percent next year.
However, the government's revenue sources will become increasingly diversified over the medium term, with oil and gas revenue declining to 54 percent by 2020 from 72 percent of total revenues in 2015, Moody’s said.
Looking ahead, downside risks to the kingdom’s credit rating include a renewed slump in oil prices or loosening fiscal consolidation, leading to a steeper-than-expected increase in debt or a more rapid drawdown in government assets.
Meanwhile, potential credit-positive developments include the full implementation of planned fiscal reforms, narrower deficits, and a lower than currently projected debt burden
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