S&P affirms Saudi ratings at A-/A-2 with stable outlook

Standard & Poor’s Financial Services has affirmed rating on Saudi Arabia with a stable outlook and said that it expects the kingdom’s financial position to remain strong over 2017-2020.

The ratings agency affirmed its 'A-/A-2' unsolicited long-and short-term foreign and local currency sovereign credit ratings.

“The stable outlook is based on our expectation that the Saudi authorities will take steps to consolidate public finances and achieve a net general government asset position above 80 percent of GDP over the next two years, in line with our current expectations.”

The agency expects average deficit of 9 percent of GDP in 2017 narrowing to 4 percent by year 2020, S & said in the report issued on Friday.

The agency based its estimates on oil prices stability with output remaining within 10 million barrels a day over the period 2017-2020, coupled with an increase in revenue starting from 2018 due to the implementation of value added tax (VAT), which will add about 2 percent of GDP.

About 70 percent of budget deficit will be financed from issuing debt instruments while the remaining 30 percent will be funded from international reserves, the agency said.

Aramco’s IPO which is expected to be launched in 2019 was not taken into account as valuations remains uncertain.  “As these plans are still in formation, and the ultimate use of the funds generated is unclear, we have not factored proceeds from a potential IPO into our projections,” the rating agency added.

Meanwhile, S&P added that non-performing loans (NPLs) at the banking sector are seen to rise from 1.4 percent at 2016 end to over 3 percent in the next two years as there are some companies’ dues still not paid by government at 2016 end.