Standard & Poor's (S&P) Ratings Services has assigned its A+ long-term local currency and its A long-term foreign currency sovereign credit ratings to the Kingdom of Saudi Arabia. At the same time, the rating agency assigned its A-1 short-term foreign and local currency sovereign credit ratings to the Kingdom. The outlook on the long-term ratings is stable.
"The stable outlook balances the prospects for the success of the government's ambitious and broad-based reform effort against the significant challenges posed by meeting the needs of a rapidly growing population and building political and economic institutions," said
S&P’s credit analyst Ala'a Al-Yousuf, director for the Middle East and Africa.
Despite several external shocks, Saudi Arabia has maintained stability in its highly open economy, in particular, a stable exchange rate, low inflation, and a sound banking system. According to S&P, the Saudi Arabian Monetary Authority (SAMA) has earned a good reputation as a banking supervisor with standards in line with international best practice.
The government has built a substantial cushion of foreign assets. Saudi Arabia's external liquidity indicators compare favorably with those of its peers. The government has no external debt, nor present plans to incur any, and the non-financial public sector has low external debt equivalent to 17 percent of current account receipts and the government's sizeable domestic investments and favorable debt composition.
The Public Investment Fund (PIF) has a sizeable portfolio of holdings in about 24 domestic listed companies. More than 80 percent of government debt is medium and long-term and held by the pension funds, the PIF and other government institutions. S&P estimates that the government is a net creditor, and expects this position to remain broadly unchanged until 2005.
The higher local currency credit ratings balance the government's ability to raise revenues and access the domestic capital markets against geopolitical risks that could impair its ability to service both local and foreign currency debt.
S&P added that the ratings are constrained by limited fiscal flexibility. Oil revenues, which account for about 80 percent of total revenues, are largely capped by the Kingdom's quota in OPEC's production and this is unlikely to increase significantly in the medium term. Budgetary expenditure control could be strengthened further to prevent overruns, but the room for sequestration in times of stress is limited unless further privatizations reduce the size of the government's payroll.
Over the next few years, growth in the non-oil private sector is expected to average five percent. This is higher than the expected indigenous population growth rate of 3.5 percent, but in line with the expected Saudi labor force growth rate. The government's strategy for dealing with this issue rests on continued macroeconomic stability, ambitious and broad-based economic reforms, enhancing education and training, and attracting foreign direct investment. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
