Fitch upgrades Saudi Arabia credit rating to 'A+'

18 Aug, 2006

Fitch Ratings upgraded Saudi Arabia's sovereign foreign and local currency credit rating to 'A+' from 'A' on Thursday, citing the strong finances of the world's largest oil exporter and its economic reform drive.
Saudi Arabia expects a budget surplus of 55 billion riyals ($14.67 billion) in 2006, but that figure is based on a conservative, $38 a barrel forecast for oil prices. Most analysts see the surplus beating last year's record of $57 billion.
The kingdom has no external debt and the Saudi finance minister has pledged to devote two-thirds of the 2005 surplus to slashing domestic debt.
"The upgrade is due to strengthened external and domestic balance sheets, ongoing economic and structural reforms, reflected in an accelerating pace of private sector growth and a reduction in domestic political risk," Richard Fox, sovereign ratings analyst at Fitch, said in a statement.
Fitch said the outlook was stable.
Saudi oil revenues are expected to hit $203 billion this year based on an average price of $62.5 a barrel for Saudi crude, according to Riyadh-based Samba Financial Group. Samba has said it expects a 2006 Saudi budget surplus of $66.7 billion.
"High oil prices have not dulled the pace of economic and structural reform, which aims to address the need to create jobs for Saudis in the private sector," Fitch said.
Saudi Arabia is pushing reforms to diversify the economy and cushion the impact when oil prices fall.
In the oil price slump of the 1990s, public debt ballooned to 119 percent of gross domestic product before falling last year to 41 percent. Fitch expects debt in gross terms to decline in 2006 to about 24 percent of GDP.
Fitch sees the current account surplus staying above 20 percent of GDP this year, having hit 28 percent of GDP at current prices, according to the finance ministry.
Fitch also cited high energy prices as a factor when it raised its credit outlook for Bahrain to positive from stable on Thursday. Bahrain is only a minor energy producer and its economy is already among the best diversified in the Gulf.
By contrast, reform in conservative Saudi Arabia is a relatively recent phenomenon.
The kingdom joined the World Trade Organisation last year and is opening up sectors of the economy such as financial services. It is also ploughing money into infrastructure and preparing more state assets for privatisation.
"Progress is also reflected in a marked improvement in the business climate," Fitch said, citing last year's non-oil private sector GDP growth of almost 7 percent, the highest growth rate in two decades.
The ratings agency saw few systemic risks to the Saudi banking system from a stock market crash this year after a long bull run, even though the equity bubble was fuelled by bank lending.
Although socio-political issues were constraining the rating, risks from militant attacks had diminished due to limited domestic support and an effective security response, Fitch said.
Militants allied to Osama bin Laden's al Qaeda group have been waging a violent campaign to topple the US-backed monarchy and expel Westerners. In June King Abdullah was quoted as saying that the militants had been defeated.
In April Standard & Poor's upgraded Saudi Arabia's sovereign rating a notch to "A+". Moody's Investors Service raised its Saudi rating 2 notches in November.

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