Saudi Arabia, Oman and Bahrain were among the oil-producing nations to have their credit ratings cut by Standard & Poor’s on Wednesday.
The kingdom’s credit grade was cut two levels from from A+ to A- due to the “marked and lasting impact” of low oil prices on the economy of OPEC’s biggest producer.
Oman saw its credit rating lowered to BBB-, the brink of junk status, following a previous cut in November. Bahrain’s rating was lowered from BBB- to BB, two steps below investment grade.
Saudi Arabia's rating was previously downgraded less than four months ago, falling one level to A+ in late October when Brent was hovering around $50 a barrel.
Oil prices reached $34.50 a barrel yesterday following an agreement between Saudi Arabia, Russia and other nations to curb production. S&P said it did not expect the deal to have a material impact on its price assumptions.
The kingdom's real per-capita gross domestic product will fall below its peers and the average annual increase in the government’s debt could exceed 7 per cent of GDP through to 2019, S&P said.
However, the agency's rating was stable in anticipation that the kingdom would take steps to prevent any further deterioration of its fiscal position.
Capital Economics Middle East economist Jason Tuvey said he did not expect the cut to have a major economic impact on Saudi Arabia.
“The government has a strong balance sheet and the authorities have plenty of options with which to finance a large budget deficit,” he said. “An A- rating is good and still leaves Saudi Arabia as investment grade,” he said in a report, according to Bloomberg.
Bahrain had sold debt just a day before the ratings cut, issuing $450m of an existing bond due in 2021 and $300m of an existing bond due in 2026. S&P predicted the government's debt could reach 77 per cent in 2017.
By Robert Anderson
