Saudi Arabia’s credit rating was cut by Standard & Poor’s, which said the decline in oil prices will increase the budget deficit to 80% of its revenue.
S&P cut the sovereign rating one level to A+, the fifth-highest classification, as it said the biggest OPEC producer’s deficit will increase to 16% of GDP this year.
The nation’s credit outlook is negative as the decline in oil prices makes it difficult to reverse the fiscal deterioration, S&P said in a statement.
The widening deficit and a high reliance on energy revenue ‘point to vulnerabilities in Saudi Arabia’s public finances’, the ratings company said.
The Saudi Finance Ministry said it ‘strongly disagrees with S&P’s approach to ratings management in this particular instance’. The downgrade was ‘driven by fluid market factors rather than changes in the fundamentals of the sovereign’, which ‘remain strong’, the ministry said in a statement on the website of state-run Saudi Press Agency.
The country is rated Aa3 by Moody’s Investors Service, the equivalent of one step higher than S&P’s new grade. S&P’s classification for Saudi Arabia is the same as Slovakia, Ireland, Bermuda and Israel.
S&P projects that Saudi Arabia’s general government deficit will decline to 10% of GDP in 2016, 8% in 2017 and 5% in 2018.
It could widen to more than 20% this year after His Highness King Salman bin Abdulaziz, Custodian of the Two Holy Mosques, announced one-time bonuses for public-sector workers following his accession to the throne in January, the International Monetary Fund (IMF) said this month.
The biggest Arab economy may run out of financial assets needed to support spending within five years if the government maintains current policies, the IMF said.
