JEDDAH, 7 January 2006 — The Standard & Poor’s ratings agency has revised its foreign currency outlook for Saudi Arabia to positive from stable. At the same time, the “A” long-term foreign currency, “A+” long-term local currency, and “A-1” short-term sovereign credit ratings were affirmed. The local currency outlook is stable.
Ehsan Bu-Hulaiga, an economist and member of the Shoura Council, told Arab News this announcement had come at a time when the Kingdom was opening up and receiving more foreign direct investment.
“This positive outlook will definitely enhance the investment climate in the Kingdom,” he said, adding that insurance companies would benefit in a big way as this sector was opening up in the Kingdom.
The outlook revision primarily reflects the government’s strengthened external financial position. Foreign reserves of the Saudi Arabian Monetary Agency (SAMA) are increasing rapidly and are expected to cross SR825 billion ($220 billion) by the end of 2006 from SR345 billion ($92 billion) in 2004, which is sufficient to cover almost 17 months of current account payments (including private transfers).
Furthermore, the government has no external debt, nor does it plan to incur any. Overall, Saudi Arabia is expected to have a net external asset position of more than 90 percent of GDP by the end of the year.
According to a SAMA report, net foreign assets jumped from SR496 billion in October to SR537.7 billion in November. Gold reserves fell from 233 tons in October to 229 tons in November, the report said. The Kingdom’s non-gold official reserves reached $27.6 billion, down 8.2 percent.
“This is a reflection of several factors, including the price of oil, the budget surplus and the recent positive monetary policies by the Kingdom, which in effect will improve the bond market — corporate bonds as well as government bonds,” said BMG Financial Advisors Chief Executive Officer Basil M. Al-Ghalayini, “The main driver behind the strengthening of the external position has been high global oil prices,” said S&P credit analyst Farouk Soussa. “The positive outlook thus reflects our expectations both that oil prices will remain robust in the medium term, and that Saudi Arabia will continue its record of fiscal prudence, as well as macroeconomic and monetary stability.”
In this context, 2005 fiscal outturns, including a general government surplus of almost 20 percent of GDP and a substantial reduction of government domestic debt, together with expected prudence going forward, support the positive outlook.
“The ratings on Saudi Arabia will be raised as the government continues its sound macroeconomic and fiscal policies, or makes progress on political reforms,” said Soussa. “Conversely, the government’s creditworthiness could come under downward pressure if there is a sustained fiscal deterioration, its debt burden increases significantly, external liquidity is impaired, or domestic and regional political risks increase.”