Moody’s said it expect that GDP will shrink again this year to around 1.5% in Saudi Arabia, the lowest level in decades.
Budget dynamics
Lower oil prices, and additional fiscal tightening in order to contain government debt dynamics, prompted the revisions for Saudi Arabia, Moody’s said.
Earlier this week the ratings agency issued a separate report saying that fuel subsidy reforms introduced by many of the Gulf Cooperation Council (GCC) nations should help address pressure from low oil prices on public finances, but would not be enough on their own to bring these governments’ budgets back into surplus.
“Recent moves to reforms subsidies signal political willingness to address the damaging effect of low oil prices on budgets. However, they fall short of the scale of economic and fiscal reform required to achieve budget balance,” says Mathias Angonin, an analyst at Moody’s.
“While the GCC governments’ balance sheets remain solid on a consolidated basis, we anticipate a sharp deterioration in the governments’ net asset position as a consequence of the decline in oil prices.,” added Angonin.
Ratings slide
Saudi Arabia headed a list of oil-producing nations whose credit ratings were cut by Standard & Poor’s on Wednesday, again due largely to the collapse in crude prices.
The world’s biggest oil producer, which still has sizeable foreign reserves, has seen the energy price collapse hammer its finances turning huge surpluses into large budget deficits, which the country is now plugging by drawing down savings and borrowing money.
S&P cut Saudi Arabia’s sovereign rating by two notches to A- from A+, saying the decline in oil prices will have “a marked and lasting impact” on the economy of the biggest Opec producer.
At that time S&P also lowered Oman’s rating to BBB- from BBB+, following a reduction in November, while Bahrain was lowered to BB from BBB-, putting it two steps below investment grade.
The moves were a near repeat of similar co-ordinated cuts made this time last year for the Middle Eastern nations where there is far more intense pressure from low oil because many currencies, including the Saudi riyal, are pegged to the dollar, limiting scope for currency weakness that could stimulate the economy.
South Africa
Meanwhile Moody’s has also downgraded its economic outlook for South Africa, forecasting growth to fall to close to zero this year.
It cited marked capital outflows in recent months, reflecting a lack of confidence in the government’s ability to deliver growth-enhancing measures in the short term, as the main reason for the move. Moody’s said room for support is constrained for both fiscal and monetary policy.
