Fitch affirms Saudi rating at 'A+' with stable outlook

Fitch Ratings has affirmed Saudi Arabia's long-term foreign-currency issuer default rating (IDR) at "A+" with a stable outlook, it said in a statement on Monday.

The ratings are supported by strong fiscal and external balance sheets, including exceptionally high international reserves, low government debt, significant government assets and commitment to an extensive reform agenda.

However, these strengths are balanced by “oil dependence, weak World Bank governance indicators and elevated geopolitical risks”.

“The fiscal break-even Brent price, which we estimate at around $80 a barrel, is higher than for many regional peers, and growth is projected to stay below the 'A' and 'AA' medians,” the statement noted.

Fitch expects the central government deficit to narrow only gradually, to 6.4 percent of GDP in 2019 (SAR 180 billion), from 8.3 percent in 2017, as renewed growth in spending offsets sharp increases in both oil and non-oil revenue.

Amid persistent budget deficits, the ratings agency believes the government will continue to issue domestic and international debt and draw down on its deposits at the Saudi Arabian Monetary Authority (SAMA).

"We see the central government debt ratio rising to around 27 percent of GDP in 2019 from a little over 17 percent in 2017, by which time debt net of general government deposits at SAMA could turn positive. Our fiscal forecasts imply net financing needs of around SAR 230 billion in 2018 and SAR 180 billion in 2019," it said.

Meanwhile, Fitch expects a pick-up of growth to 1.8 percent in 2018 and 1.9 percent in 2019.

"The fiscal expansion will accelerate non-oil growth, although, in our view, it is still likely to be held back by elevated domestic uncertainty and uncertainty over the regional environment (tensions with Iran and the war in Yemen),” the statement said.

Real GDP contracted 0.7 percent in 2017 on the back of a 4.8 percent decline in crude output. Non-oil GDP grew 1 percent, up from no growth in 2016, likely helped by the clearance of arrears in the private sector and generally improved confidence as a result of higher oil prices.

“Structural reforms under the Vision 2030 programme could boost growth over the medium term,” the ratings agency added.