Fitch cuts Saudi Arabia’s ratings to ‘AA-‘ from ‘AA’ on low oil prices

Fitch Ratings said on Tuesday it had cut Saudi Arabia’s long-term foreign and local currency issuer default ratings to ‘AA-‘ from ‘AA’ with a negative outlook as oil prices remain weak.

“The downward revision of our oil price assumptions for 2016 and 2017 to $35/b and $45/b, respectively, has major negative implications for Saudi Arabia’s fiscal and external balances,” the ratings agency said in a statement.

Brent crude was trading at $43.42 on Tuesday.

Fitch said it also considered Saudi Arabia’s geopolitical risks to be high relative to ‘AA’-rated peers, noting tensions with longstanding rival Iran and Riyadh’s military intervention in Yemen and Syria.

The agency said it expected Saudi Arabia’s deficit-to-GDP ratio to narrow only marginally in 2016 and more substantially in 2017 on the back of a moderate recovery in oil prices.

The government’s deficit widened to 14.8 per cent of GDP in 2015 from 2.3 per cent in 2014 after continuous surpluses since 2010, Fitch noted.

Fitch said Saudi Arabia’s real gross domestic product growth would likely slow to 1.5 per cent in 2016 from 3.4 per cent in 2015, with 1.7 per cent growth expected in 2017.

“We expect oil output to stabilise and non-oil GDP to be hit by fiscal consolidation measures and weaker confidence,” Fitch said.

The agency said monetary policy remained constrained by the peg to the U.S. dollar but a change in the peg was highly unlikely despite heightened speculation about a devaluation.