Saudi Arabia downgraded as deficit widens

Concerns about rising debt and falling reserves caused Fitch Ratings to lower its assessment of Saudi Arabia’s credit quality.

The agency cut its long-term foreign and local currency issuer default ratings for Saudi Arabia by one notch to A+, listing a series of challenges faced by the Gulf kingdom. These include geopolitical risks related to war in Yemen and tension with Iran.

The downgrade “reflects the continued deterioration of public and external balance sheets, the significantly wider than expected fiscal deficit in 2016 and continued doubts about the extent to which the government’s ambitious reform programme can be implemented”, said the agency in a statement.

Fitch Ratings observed that the net foreign assets owned by the Saudi Arabian Monetary Agency, the nation’s sovereign wealth fund, fell by $46 billion between June 2016 and January of this year, a decline of more than 8%.

Excluding the oil sector, the economy grew just 0.2% last year, according to the agency’s figures. Fitch said the slow growth “reflected the liquidity crunch due to the delay of government payments during the first three quarters of last year and the increased uncertainty as a result of the reform efforts, which may have held back investment”.

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