Moody's: Kingdom's economic strength is 'very high'

Updated 02 November 2015

Moody's: Kingdom's economic strength is 'very high'

JEDDAH: Saudi Arabia's Aa3 foreign and local-currency government bond ratings and stable outlook are supported by its vast hydrocarbon resources, high per capita income, and strong but deteriorating fiscal position. Strong growth in oil revenues in the past several years generated very large fiscal surpluses through 2013, allowing the government to build a sizable asset cushion and sharply reduce its debt ratios to levels much lower than rating peers, according to a report by Moody’s released on Monday.
Starting in 2014, however, the government started recording budget deficits, and this is likely to continue for several years. The government is once more issuing debt as well as running down its financial assets. Other credit challenges are mainly institutional. World Bank governance indicators place Saudi Arabia lower than most of its peers, although financial sector supervision by the Saudi Arabian Monetary Agency (SAMA) proved effective through the global financial crisis, and the banking system remains strongly capitalized.
Downside risks to the stable outlook relate to the economy’s exposure to commodity cycles and price shocks. A longer period of low oil prices, particularly if this were to be accompanied by policy choices that led to a steeper increase in debt or a sharper diminution of financial assets, would have a negative impact on Saudi Arabia's credit profile. Our baseline scenario for the government’s fiscal position shows continuing fairly large deficits, with a resultant material decline in financial assets and a quite substantial build-up of debt, albeit from a low level. If this trend is not moderated, downward pressure on the rating will build up over the coming years.
The strength of the government’s financial position before oil prices began their decline in mid- 2014 provides a strong buffer that allows the government to easily finance its large budget deficits without seriously undermining its fiscal strength in the near term. However, if oil prices continue at their current, relatively low level over the medium term and the government does not implement further measures to reduce budget deficits through spending cuts or revenue increases, the weakening of the government’s finances would affect assessment of fiscal strength. The stable outlook on the rating reflects our current expectation that sufficient measures to address the deficit will ultimately be forthcoming.
“We assess Saudi Arabia’s economic strength as “Very High,” supported by a track record of strong growth, high wealth levels, and large hydrocarbon reserves. Other countries who score similarly for economic strength include Germany (Aaa stable), Japan (A1 stable) and Qatar (Aa2 stable), among others,” Moody’s said.
Saudi Arabia’s real GDP growth has averaged 5.5 percent over the last decade, supported by the country’s natural resource wealth. Since 2014, however, the country has entered a period of slower growth as a result of lower oil prices and their effect on government finance and economic activity generally. Saudi Arabia’s proven oil and gas reserves were approximately 321 billion barrels of oil equivalent in 2014, the third largest in the world. At the current rate of production, its proven hydrocarbon reserves would last approximately 65 years, lower than most regional oil producing peers but higher than GCC peers Oman (A1 negative) and Bahrain (Baa3 negative).


Saudi-led group reinstated as builder of Bulgaria gas pipeline

Updated 16 September 2019

Saudi-led group reinstated as builder of Bulgaria gas pipeline

  • Bulgaria’s Supreme Administrative Court announced that the Saudi-led group’s main competitors for the project had dropped a legal challenge relating to the award
  • Bulgaria’s state gas operator Bulgartransgaz had initially chosen the Saudi-led group — made up of Saudi Arabia’s Arkad Engineering and a joint venture including Switzerland’s ABB

SOFIA: A Saudi-led consortium was definitively reinstated on Monday as the builder of a new gas pipeline through Bulgaria, intended to hook up to Gazprom’s TurkStream project.
Bulgaria’s Supreme Administrative Court announced Monday that the Saudi-led group’s main competitors for the project had dropped a legal challenge relating to the award.
The latest development brings to an end a long-running tussle between the Saudi-led consortium and its competitors for the project, a consortium of Luxembourg-based Completions Development, Italy’s Bonatti and Germany’s Max Streicher.
Bulgaria’s state gas operator Bulgartransgaz had initially chosen the Saudi-led group — made up of Saudi Arabia’s Arkad Engineering and a joint venture including Switzerland’s ABB — to build the 474-kilometer (294-mile) pipeline.
But Bulgartransgaz later decided to strike the winner off the tender for failing to supply documents needed to sign off the contract.
Instead it accepted the offer of the second-placed consortium led by Completions Development.
However, Bulgaria’s competition watchdog ruled in July that the operator should honor its previous commitments and sign a contract with the Saudi-led group.
The watchdog’s verdict was subject to a final appeal in the courts but the Supreme Administrative Court announced Monday that the appeal had been withdrawn, meaning that the Arkad-led group has now been definitively reinstated.
Bulgartransgaz is in a hurry to complete the pipeline as soon as possible in a bid to enable Russian gas giant Gazprom to hook it up to its TurkStream pipeline after it becomes operational at the end of this year.
Bulgaria, which is heavily dependent on Russian gas for its domestic needs, has been repeatedly criticized by both the EU and the United States for failing to diversify both its gas sources and its delivery routes.
The Balkan country hopes to start receiving Caspian Sea gas from Azerbaijan’s Shah Deniz field as well as liquefied natural gas from various sources via terminals in Greece through a 182-kilometer (113-mile) interconnector expected to be ready by the end of 2020.