S&P Global Ratings affirmed Saudi Arabia’s ‘A-/A-2’ long- and short-term sovereign credit ratings with a stable outlook on Friday.
“The stable outlook reflects our expectation that the current low oil price environment, although affecting fiscal flows, will be counterbalanced by Saudi Arabia’s strong government and external balance sheets, with net asset-stock positions on both,” the S&P statement said.
S&P noted that at the March 6 OPEC meeting, Saudi, Russia and other OPEC members did not reach agreement on continued oil supply restrictions, leading to the collapse of the OPEC+ supply constraint agreement from April 1, 2020.
A potential boosted supply coupled with “lacklustre demand” due to the ongoing pandemic led to a sharp fall in global oil prices, resulting in a sharp rise in Saudi Arabia’s fiscal deficit in 2020. Though S&P noted this deficit will narrow.
“Our estimate of Saudi Arabia’s strong net asset (stock) position on both its fiscal and external balances continues to be a key ratings support, but prolonged low oil prices will erode its net asset stock and begin to put pressure on the ratings,” the statement said.
In February, S&P said the business cycle in Gulf countries in likely to take “several quarters at least to fully recover” from twin shocks of the coronavirus pandemic and the drop in oil prices.
Corporate and infrastructure companies in the six-nation Gulf Cooperation Council are expected to operate “conservatively” in 2021 as the economy recovers, according to the report.
Regarding Saudi, S&P said in its latest update: “We anticipate that public investment will remain high under ongoing expenditure plans tied to Vision 2030, the goals of which are to support the non-oil economy and private-sector demand.”
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