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Saudi's balance sheet 'strong' despite low oil

RIYADH, October 8, 2016

Saudi Arabia's balance sheet will remain strong between 2016 and 2019, despite the sharp fall in oil prices in recent times, according to a report by Standard & Poor.

The ratings agency affirmed an ‘A-/A-2’ rating for Saudi Arabia and maintained a stable outlook for the kingdom.

“The outlook for Saudi Arabia is based on an expectation that the authorities will take action in order to prevent any deterioration in its fiscal position beyond our current expectations, over the next two years,” S&P said in its review.

S&P pointed out that Saudi Arabia’a outlook could have been more positive if it weren’t constrained by limited public sector transparency and lower GDP per capita in comparison to similar states.

It predicted that the average annual rate change in government debt over 2016-2019 would level out at around 5 per cent of GDP.

“The ratings on Saudi Arabia are supported by its strong external and fiscal stock positions, which we expect will be maintained despite significant current account and fiscal deficits. The ratings are constrained by limited public sector transparency, lower GDP per capita relative to similarly rated sovereigns, and constrained monetary flexibility,” said S&P in a statement.

S&P indicated that “we could raise the ratings if Saudi Arabia’s economic growth prospects improved markedly beyond our current assumptions.”

The ratings agency projected that the general government deficit would average about nine per cent of GDP in 2016-2019, reflecting the sharp decline in oil prices since the summer of 2014.

According to S&P, the annual change in general government debt is for an average increase of about five per cent of GDP.

"In the case of Saudi Arabia, the change in general government debt is lower than the deficit as we have assumed an even split between asset draw-downs and debt issuance in terms of deficit financing, " S&P stated in its report.

"We acknowledge both upside potential and downside risk to these forecasts. Upside potential stems principally from oil prices. The downside rests with the scale of the required fiscal consolidation and the broader impact it will likely have on the economy," it added.-TradeArabia News Service

Tags: Saudi Arabia | S&P | Balance sheet | low oil |

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