Fitch gives Saudi Arabia AA rating

One of the top rating agencies has underscored Saudi Arabia’s resilience as an investment destination despite lower oil prices and continued spending.

Fitch has reissued an AA grade with a stable outlook to the country, driven by curtailed government spending and an anticipated recovery of oil prices to US$70 a barrel this year and $80 a barrel next year, along with the country’s ability to remain unaffected by regional conflicts, stability at home and labour and housing market reforms. The country has been at AA since it was upgraded from AA- in March last year.

Saudi Arabia’s net creditor position is still projected to be the fourth-largest of all Fitch-rated sovereigns.

Less overspending, lower capital spending and higher oil prices will lower the deficit to a forecast 3.7 per cent of GDP next year after touching double digits this year, Fitch said in a report released early yesterday.

Brent crude rose to US$62.58 per barrel on Friday after plunging to $48 per barrel last month. It peaked last year at about $111 in June.

The decline in oil prices led the Saudi stock market to fall about 18 per cent since September.

Standard and Poor’s last month changed its outlook for Saudi Arabia to negative from stable, citing the country’s high dependence on oil.

Fitch forecasts the country’s current-account surplus to go down to 0.3 per cent of GDP this year, the lowest since 1999, driven by oil prices.

The oil and gas sector accounts for about 90 per cent of Saudi government revenue and 85 per cent of its exports.

King Salman announced a $29 billion spending package after ascending the throne following King Abdullah’s death in January. It is expected to cost the government 4.3 per cent of the forecast 2015 GDP. The government also announced a two-month salary bonus for public-sector employees.

Plans to open the Saudi Tadawul stock exchange to large foreign investors are on track, according to Prince Saud bin Khalid Al Faisal, the executive director of investment policy at the Saudi Arabian General Investment Authority. He was speaking at the Telegraph Middle East Congress in London last week. The move could inject billions of dollars into the Saudi market.

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