Fitch just dropped the credit rating of Saudi Arabia from 'AA' to 'AA-'and kept its 'negative' outlook on the important oil producer. The degradation was motivated by the assumption that oil prices will remain near $35 per barrel this year and $45 per barrel in 2017.
According to Business Insider, the international credit rating agency said that Saudi Arabia's tempt to raise money, entailing the seeking of a $10 billion loan from European banks along with its first Eurobond issue later this year, must help push the debt-to-GDP ratio back up ratio to 9.4% in 2017 as much as possible.
Saudi Arabia's deficit was noted by Fitch has risen to14.8% of gross domestic product last year from 2.3% in 2014 due to the catalyst that declines the oil prices.
As cited by the U.S. News & World Report, the downgrade is mostly because of Saudi's decision to cut its average oil price supposition for this year. The benchmark New York crude oil rate is presently trading to almost $40 a barrel which is more than $10 a barrel higher in the trading earlier this year.
As Fitch stated, the expected low oil price market will have "major negative implications" for Saudi Arabia's financial position. The agency anticipates a huge piece of the country's financing needs to be funded by foreign investors including the issuance of debt locally and abroad.
Saudi government is already in talks regarding a syndicated loan reaching to $10 billion and plans of its first Eurobond issue later this year. Fitch stated that a continued worsening of fiscal balances, or the narrowing of the fiscal deficit which is slower than anticipated are factors that could result in a downgrade together with potential spillover from regional conflicts. The outlook is negative which means that Fitch does not expect near-term developments to lead to an upgrade, based on a MarketWatch report.
The authorities will be cautious to ramify fiscal reforms to prevent social consequences. Even when totally implemented, the measures will not prohibit a substantial erosion of fiscal and external mitigation during 2016 and 2017.
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