RIYADH, 15 November 2005 — Ratings agency Moody’s lifted Saudi Arabia’s foreign currency rating by two notches to A3 yesterday, citing soaring oil revenues, progress on economic reforms and greater economic transparency.
This brings Moody’s rating closer to those other agencies have assigned to the world’s top crude exporter, which is awash with cash and has no external debt. Bankers say even its domestic debt issues have dipped as oil revenues pile up.
“Saudi Arabia has achieved dramatic economic and financial improvements over recent years, moving up from an already solid position in comparison with similarly-rated countries,” Moody’s said in a statement. It said strong external liquidity and higher oil revenues had allowed the Kingdom to reduce local currency denominated debt as a percentage of gross domestic product, which hit 119 percent after oil prices collapsed in late 1990s.
Economists expect that figure to fall to around 50 percent by the end of the year.
Although Saudi Arabia is expected to run a budget surplus this year of around $50 billion and has no need to borrow on the international market, Brad Bourland, chief economist at Samba Financial Group, said the upgrade was important for local firms.
“As more and more companies consider coming to market with their own bond issues, the sovereign ratings for the country are important for the market acceptance of those bonds,” Bourland said.
Moody’s hailed Saudi Arabia’s efforts to push through economic reforms and welcomed the prospect of greater transparency now that Riyadh was on the threshold of World Trade Organization membership.
Saudi Arabia is set to become the 149th member of the WTO next month after 12-years of tough on-off negotiations. While reform has been relatively slow, Riyadh, like other Gulf Arab states, is trying to wean its economy off oil exports.
“They (reforms) also encourage economic diversity with a view to offering more job opportunities to Saudi nationals and enhancing the country’s structural resilience to economic and financial shocks.” Moody’s said.
Other agencies have also assigned Saudi Arabia an investment grade rating. Standard & Poor’s ‘A’ rating is now one notch above Moody’s as is Fitch’s ‘A’.
The Kingdom’s foreign exchange reserves have rocketed due to high oil prices, climbing from $60 billion in 2003 to over $90 billion in 2004. S&P projects reserves of $160 billion in 2005.