JEDDAH, 15 July 2003 — Saudi Arabia has been given high sovereign credit ratings by the world’s most influential credit rating agency, Standard and Poor’s.
The agency assigned the Kingdom sovereign credit ratings of “A+” for long-term local currency and “A” for long-term foreign currency. At the same time, Standard and Poor’s assigned “A-1” for short-term foreign and local currency to the Kingdom. The outlook on long-term ratings is stable.
The ratings results are based on the Kingdom’s macroeconomic stability and substantial external liquidity.
Saudi Arabia has maintained stability in its economy, in particular a stable exchange rate, low inflation, and a sound banking system under the supervision of the Saudi Arabian Monetary Agency.
According to a statement by S&P’s, seen by Arab News, the ratings were constrained by a few factors, the first of which is what is described as its 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.
Another constraint is insufficient private sector economic growth. Over the next few years, growth in the non-oil private sector is expected to average 5 percent.
The report states that 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.
Another constraining factor is what the report calls “a slowly developing sociopolitical system.”
“Policy-making is slowed down by the need to preserve consensus among diverse stakeholders. This approach has maintained political stability, but policy-making has been slow and timid in the face of short-term economic shocks and long-term demographic challenges. The political system is developing, however, which could potentially expedite decision-making,” the report said.
“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 Alaa Al-Yousuf, director for the Middle East and Africa.
The report concluded by saying the government’s creditworthiness could improve over the medium term if the natural gas initiative is launched soon and is successful.
Other conditions for improvement include acceleration of non-oil private sector economic growth, expansion of the government’s non-oil revenue base, and a reduction of the socioeconomic pressures of youth unemployment.
Conversely, the government’s creditworthiness could come under downward pressure if its debt burden increases significantly, external liquidity is impaired, or because of political risk, the report added.
