Fitch Ratings downgraded Saudi Arabia’s credit rating on Monday as the agency expects oil prices to stay well below the $50 per barrel mark over the next two years.

In a note, Fitch Ratings said it has downgraded Saudi Arabia’s long-term foreign and local currency Issuer Default Ratings (IDRs) to AA- from AA.

The agency’s outlook on the country’s long-term IDRs remains negative.

Saudi Arabia’s Country Ceiling was affirmed at AA+ and its short-term foreign-currency IDR was affirmed at F1+.

Fitch said the downgrade is partially tied to its downward revision of oil price assumptions for 2016 and 2017, a move that has “major negative implications for Saudi Arabia’s fiscal and external balances.”

Fitch is currently assuming an average Brent crude oil price of $35 per barrel in 2016 and $45 per barrel in 2017.

A widening central government deficit was also cited as a reason behind the downgrade.

The agency said that Saudi Arabia’s central government deficit widened to 14.8 percent of GDP in 2015, up substantially from a deficit level of 2.3 percent in 2014.

Fitch expects the country’s deficit-to-GDP ratio to “narrow only marginally” in 2016 and narrow “more substantially” in 2017 when oil prices are expected to post a moderate recovery.

Real GDP growth is expected to slow from 3.4 percent in 2015 to 1.5 percent in 2016 and 1.7 percent in 2017.

The kingdom’s non-oil GDP is expected to be negatively impacted by fiscal consolidation measures and “weaker confidence.”

Fitch said it considers geopolitical risks in Saudi Arabia to be “high” relative to other AA-rated peers.

“Tensions have risen between Saudi Arabia and its long-standing regional rival Iran, and are expected to persist, although a direct confrontation is highly unlikely,” Fitch said.

Structural indicators also appear to be “generally weaker than peers,” as GDP per capita and World Bank governance indicators remain “well below” peer medians.

Fitch’s outlook for Saudi Arabia’s remains negative and the agency said it “does not currently anticipate developments with a material likelihood of leading to an upgrade. ”

All 13 members of OPEC along with representatives from Russia, Oman and Bahrain will meet in Doha on Sunday to discuss a potential output freeze.

A representative from Mexico will also attend but will only observe the meeting.

Iran is expected to attend the meeting but has repeatedly said it will not support any production freezes or cuts.


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