S&P revises Kingdom’s long-term sovereign credit ratings to positive


Published — Thursday 30 May 2013

Last update 31 May 2013 8:50 pm

| نسخة PDF Print News | A A

Standard & Poor's Ratings Services yesterday revised the outlook on the long-term sovereign credit ratings of Saudi Arabia to positive from stable. It also affirmed the long- and short-term foreign and local currency sovereign credit ratings at "AA-/A-1+". The transfer & convertibility (T&C) assessment for Saudi Arabia is unchanged at "AA+".
Commenting on the SRP report, Jarmo T. Kotilaine, a regional analyst, said: "This is news is clearly positive. While the Saudi sovereign has no imminent need to go to the markets, an improved outlook should trickle down into better financing conditions for Saudi corporates and government-related issuers. This is particularly important at a time when the sukuk markets are developing scale and sophistication, and becoming an increasingly important part of meeting the country's funding and economic development needs."
S&P said continued growth would help to reduce the country's social challenges, including unemployment, and enhance productivity and competitiveness. Growth fundamentals have strengthened in Saudi Arabia. A long track record of high and steady nonoil growth, averaging 8.0 percent during 2005-2012, has contributed to overall average real GDP growth of 6.5 percent. It said, the improved growth prospects for the nonoil economy will bolster the economy's resilience to exogenous shocks such as a decline in oil prices.
Fahad Alturki, senior economist at Jadwa Investment, said: "In another 20 months, Saudi Arabia’s rating will be changed and this will boost confidence because it is a strong economy regionally and globally."
John Sfakianakis, chief investment strategist at Masic in Saudi Arabia, said: "I expect the Saudi sovereign rating to be upgraded by one notch this year, which will bring the country's ratings closer to the rest of the GCC."
He said: "Saudi Arabia has made steady improvements to economic fundamentals. In particular, a steady downtrend to public debt-to-GDP brought the ratio to the third lowest in the world. Oil revenues and prudential macro-fiscal policies of the Ministry of Finance have also boosted net foreign assets to above 90 percent of the country’s GDP."
Sfakianakis added: An upgrade in the country's sovereign rating will have a major impact in credit spreads and cost of foreign capital for corporates and banks. Hence there are plenty of positives."
The S&P report said ratings are supported by Saudi Arabia's very strong external and fiscal positions, which have built up over several years. By managing high oil revenues prudently, the government has virtually eliminated its general government debt, generating additional fiscal space for countercyclical policies.
It pointed out that foreign currency assets under the Saudi Arabian Monetary Agency's management exceeded 90 percent of 2012 GDP at end-March 2013.
However, Asim Bukhtiar, vice president/head of research at Riyad Capital, said: "There is scarce relevance in Saudi sovereign credit ratings if there are no mid-term plans to issue government bonds. Absence of a liquid treasury market compounds the dilemma of determining benchmark rates for credit issuers and investors. Bulk of debt issues are priced at a spread to LIBOR, which are independent of Saudi sovereign ratings."
He added: "For fundamentals-focused equity investors, there may be some benefit as the risk-free rate is typically a spread to US Treasuries based on perceived country risk. Here the sovereign rating could provide some guidance."
According to S&P's estimate, the Kingdom’s real per capita growth in 2013 is to reach 1.6 percent, down from estimate of 3.8 percent growth for 2012. The slowdown is mainly due to an expected decrease in Saudi oil production in line with softening demand for oil globally and additional supplies from other sources coming on-stream.
The improved growth fundamentals for the nonoil economy also reflect the government's fiscal policy flexibility. It has been able to stimulate the nonoil economy with public spending, which has helped boost private-sector activity.
The government will continue to register strong fiscal and current account surpluses, which are estimated at 11 percent and 20 percent, respectively, this year.
The report said Saudi government has also been actively addressing structural issues, including the availability of housing and housing finance, as well as tackling labor market imbalances. In 2011, the government introduced Nitaqat, a revised nationalization program, to raise the employment of Saudis in the private sector and to raise the labor participation rate of Saudi women. It also intervened to raise the cost of foreign labor. While these measures may create short-term distortions in the market, raising foreign labor costs may help raise productivity over the longer term.

What's happening around Saudi Arabia

JEDDAH: Labor Minister Mufrej Al-Haqabani has launched a series of electronic projects and facilities provided to the private sector companies, the SPA reported on Sunday.The projects and facilities include electronic visa issuance for the distinguis...
RIYADH: A high-powered team of officials from the Ministry of Health visited the hospitals in Jazan in the southern border to ensure services are in place to serve the patients in the region.The group of officials, comprising Dr. Nahar Al-Azmi, Dr. T...
YANBU: Like many Saudi women, Amani dreamt of becoming a mother, but was unable to have children of her own after many years of marriage. Therefore, she decided to spend her time taking care of orphans with special circumstances in Makkah.However, th...
RIYADH: A total of 43 warehouses were shut down in Jeddah for failing to take safety and health measures.Officials of the general department of Civil Defense in Jeddah carried out inspection at 165 industrial complexes in the industrial zone recently...
JEDDAH: A quarrel between two girls at the Al-Zahour Orphanage in Makkah took a violent turn recently, with one of them reportedly using a sharp instrument to attack the other and injuring her.The attacker was sent to a correction center, while the i...
RIYADH: A woman and three men died on Sunday after contracting the Middle East Respiratory Syndrome coronavirus (MERS-CoV) in Riyadh, bringing the total number of deaths to 507 since June, 2012.According to the latest report issued by the Ministry of...

Stay Connected