S&P downgrades Saudi Arabia on oil price slump

Global credit rating agency Standard & Poor's has cut the sovereign rating of oil-rich gulf state Saudi Arabia by a notch to A+/A-1, with negative outlook, as a result of falling national revenue due to plunge in oil prices.

The Organization of Petroleum Exporting Countries' (OPEC's) biggest oil producer relies on oil for about 80 per cent of its fiscal revenue and the rating agency believes that the country's budget deficit will widen to 16 per cent of gross domestic product (GDP) in 2015, up from 1.5 per cent last year.

S&P estimates the country's budget deficits to be 10 per cent of GDP next year, 8 per cent in 2017 and 5 per cent in 2018, based on an average projected oil price of $63 a barrel.

Traditionally, the oil rich nation has run fiscal surpluses which averaged 13 per cent of GDP over the 10 years to 2013.

Oil prices have fallen over 55 per cent in the past one year with Brent crude traded at around $49 a barrel yesterday.

The country's credit outlook is negative and decline in oil prices makes it difficult to reverse the fiscal deterioration, according to S&P.

''We could lower the ratings within the next two years if the government did not achieve a sizeable sustained reduction in the general government deficit of its liquid fiscal financial assets fell below 100 per cent,'' S&P said.

Meanwhile, Saudi Arabia has strongly criticised S&P's downgrade.

"S&P's downgrade was driven by fluid market factors rather than changes in the fundamentals of the sovereign, which "remain strong," the country's finance ministry said in a statement, which was released by the official SPA news agency early today.

It said that the country's economy remained fundamentally strong and is growing faster than similar economies and its net assets exceeded 100 per cent of GDP.

Another leading rating agency Moody's Investors Service rates Saudi Arabia as 'Aa3' which in comparison with S&P's current rating is a notch higher. Fitch Ratings has an 'AA' on Saudi Arabia which is two steps higher than S&P's.

Earlier this week, the International Monetary Fund (IMF) in its regional economic outlook for MENAP countries, said that Saudi Arabia would have exhausted all its cash reserves in five years and would become bankrupt, if oil prices continue at the same levels and the government's spending spree continues at the current pace.

According to the report, the country's budget deficit is likely to shoot up to over 20 per cent this year. The country's foreign reserves fell $73 billion since the beginning of the oil price slump last year.