Saudi Arabia's outlooks on long-term IDRs stable

Saudi Arabia has no sovereign external debt. Double-digit current account surpluses have been posted in ten of the past 11 years

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Fitch Ratings has affirmed Saudi Arabia's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'AA'. The Outlooks on the Long-term IDRs are Stable. The Country Ceiling has been affirmed at 'AA+' and the Short-term foreign currency IDR at 'F1+'.

The affirmation reflects the following factors: Saudi Arabia has exceptionally strong sovereign and external balance sheets. The domestic net creditor position is the second-strongest of all Fitch-rated sovereigns. Government deposits in the banking sector were 58 percent of GDP at end-June compared with general government debt of 0.6 percent of GDP at end-2013. Sovereign net foreign assets were 112 percent of GDP at end-2013, the fifth-strongest of all Fitch-rated sovereigns.

Saudi Arabia has no sovereign external debt. Double-digit current account surpluses have been posted in ten of the past 11 years.

A surplus equivalent to 3.9 percent of forecast 2014 GDP was recorded in the first quarter and another double-digit outturn is expected this year. Falling oil revenues, in line with Fitch's oil price assumptions, will lower the current account surplus each year to a forecast 6.8 percent of GDP in 2016. On-going surpluses will allow a further build-up of foreign assets.

Fiscal surpluses have been recorded in each year but one since 2000. A fiscal deficit was recorded in the first half of 2014 of 1.1 percent of forecast GDP, due primarily to unspecified foreign assistance and higher capital spending.

Fitch forecasts a general government surplus of 3.1 percent of GDP for 2014 due to high oil revenues. Although the net creditor position is forecast to ease through to 2016 as deposits allocated for specific capital projects are drawn down, it will remain a clear credit strength. Real GDP growth is in excess of peers.

Growth was 4.7 percent in the first quarter, driven by higher oil production. Non-oil private sector growth eased to 4.4 percent, with sectors affected by the short-term impact of labor market reforms all posting notably slower growth. Non-oil private sector growth averaged 6.5 percent in the past five years and is forecast at around 5 percent through to 2016 due to substantial government spending, completion of major projects, and higher employment of nationals. Growth volatility is below peers.

Progress continues in addressing unemployment and a shortage of affordable housing, both of which Fitch considers as potential economic sources of social instability. Measures have been introduced to enhance access to residential real estate and Saudi employment in the private sector has risen.

The economy is heavily dependent on oil, which accounts for 90 percent of fiscal revenues and 80 percent of current account revenues, levels that have been little changed over the past decade.

*This article was originally published in Saudi Gazette on September 7, 2014.

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