Moody's lowers credit ratings for Saudi Arabia and other Gulf oil producers

16 May 16

Moody's has downgraded Saudi Arabia’s credit rating as the oil price slump hits the kingdom’s public finances.

Other Gulf producers Oman and Bahrain also saw their ratings downgraded and, while the United Arab Emirates and Qatar saw their ratings unchanged, Moody’s announced a negative outlook for both countries.

Moody's said Saudi Arabia, the world’s biggest oil exporter, had been hit hard by the deep and prolonged decline in oil prices.

The country’s gross domestic product dropped by 13.3% in 2015, with a further 5% reduction expected by Moody’s this year and the agency said government finances have “deteriorated significantly”.

With 72% of government revenues stemming from the kingdom’s oil trade, the government deficit rose from 2.3% in 2014 to 14.9% last year as prices crashed from $100 per barrel to under $30 by February 2016.

This left the government $98bn out of pocket last year. Moody’s anticipates government debt to rise to more than 35% of GDP by 2018, and also pointed to shrinking buffers and foreign exchange reserves.

However, Moody’s adopted a “stable” outlook for Saudi Arabia due to a “comprehensive and ambitious reform plan” announced by the kingdom’s Prince Mohammed bin Salman last month.

It envisages, among other things, the diversification of the economy to end the country’s “addiction to oil”.

Oman too had its ratings downgraded as lower prices led to massive declines in government revenue. Around 87% of these used to come from oil and gas sales, but Moody’s said that over the forecast period this is likely to fall to 60%.

Oman has undertaken a comprehensive programme of fiscal consolidation, cutting wages, benefits, subsidies, defence and capital investment, but the $4.5bn in savings made has been completely offset by low prices, leaving the country’s record high deficit largely unchanged.

Unlike Saudi Arabia, Moody’s said the Omani government’s plans do not address the public purse’s reliance on oil revenue and it expects further deterioration in the finances over the coming year.

Nevertheless, the agency gave Oman a stable outlook due to a number of strengths in the country’s profile, such a relatively low government debt and access to financial buffers to help the economy deal with shocks.

Bahrain, however, received a negative outlook, with Moody’s expecting the government debt burden and already big fiscal deficits to rise further.

It said Bahrain lacks the “more aggressive measures” outside of its fiscal consolidation plans to solve the problem.

Despite the UAE’s public finances also weakening significantly, Moody’s did not downgrade their rating due to Abu Dhabi’s diversified offshore investments, which represent solid fiscal buffers.

This will “support the UAE’s economic and fiscal resilience” throughout low prices and subdued growth, it said. 

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