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Fitch Affirms Saudi Arabia at 'AA-'; Outlook Stable

January 13, 2010 | Fitch Ratings

Fitch Ratings-London-12 January 2010: Fitch Ratings has today affirmed Saudi Arabia's Long-term local and foreign currency Issuer Default ratings (IDRs) at 'AA-', both with Stable Outlooks. The Country Ceiling is affirmed at 'AA' and the Short-term foreign currency IDR at 'F1+'.
"Saudi Arabia's strengths have come to the fore amid the global slowdown and financial crisis," says Charles Seville, Director in Fitch's Sovereign team. "The financing flexibility offered by the government's balance sheet - built up by saving past oil revenues - has enabled it to forge ahead with spending plans without raising borrowing."

A strong government balance sheet is one of the chief supports to the ratings. Sovereign net foreign assets were estimated at 132% of GDP at end-2009 and are conservatively-managed and valued. Consolidated general government debt was just 6% of GDP. In absolute terms, net foreign assets are second only to Japan's in the 'AA' category. They are also among the strongest in relation to GDP and current account receipts, but remain weaker compared to other major Gulf Cooperation Council (GCC) oil producers, particularly measured against government spending.

Government external assets, reported monthly on the Saudi Arabia Monetary Authority's (SAMA) balance sheet, fell USD65bn (17.6% of GDP) between their peak in November 2008 and their trough in September 2009, from where they have since resumed growth. The central government ran an estimated deficit of 3.3% of GDP in 2009, the first since 2002. This performance contrasted with 2008, when a spike in oil revenues allowed the government to run a fiscal surplus of 34% of GDP and its external assets grew USD140bn.

The government plans to raise spending by 13.7% in 2010. Should oil prices match Fitch's assumption of USD70/b in 2010, then the government will be able do so while continuing to run a fiscal surplus of at least 5% of GDP. The public finances are vulnerable to a fall in oil prices, but this would have to be steep and prolonged to affect sovereign creditworthiness.

Saudi Arabia faces the challenge of diversifying the oil-dependent economy to create jobs for a young and growing population. The government is investing to achieve these long-term goals, successfully spurring growth in the non-oil sector. However, Fitch notes that the breakeven oil price has crept up and was USD68/b in 2009. A period of lower oil prices could still compel the government to curb spending to preserve its balance sheet, although under most conceivable oil price scenarios, the government's net foreign assets position will remain comfortable.

A prudently regulated banking system has weathered the crisis without state solvency support, unlike most others in the GCC. SAMA has offered timely liquidity support to banks and eased monetary policy. Loan impairments have increased and the system-wide risk weighted capital ratio has fallen, but at 15.9% of assets in March 2009 it is still comfortable relative to peers.

Structural factors are weaknesses relative to similarly rated countries outside the region. As elsewhere in the GCC, greater transparency, particularly over government finances, would be positive for the ratings.

Company: Saudi Arabia

Full company nameThe Kingdom of Saudi Arabia
Country of riskSaudi Arabia
Country of registrationSaudi Arabia

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