London, Asharq Al-Awsat-The credit rating organization Standard & Poor’s Ratings Services said it raised its long-term foreign currency sovereign credit rating on the Kingdom of Saudi Arabia to ‘A+’ from ‘A’. At the same time, the ‘A+’ long-term local currency and ‘A-1’ short-term sovereign credit ratings were affirmed. The outlook on both the foreign and local currency ratings is stable.
Foreign reserves of the Saudi Arabian Monetary Agency (SAMA) have increased rapidly in recent years, and are expected to top $220 billion by year-end 2006 (from $92 billion in 2004), which is sufficient to cover about 23 months of current account payments (including private transfers).
Furthermore, the central 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% of GDP by end-2006.
In 2005, fiscal outturns were impressive: the general government surplus was almost 20% of GDP, a significant portion of which went toward the retirement of a substantial amount of government domestic debt. Moreover, the macroeconomic framework was strengthened by the recent accession to the WTO, which is expected to anchor Saudi’s economy on the path of liberalization and openness. This will provide continued support for ongoing structural economic reform, helping to diversify the economy, to reduce unemployment, and to encourage private sector growth. Sharp losses in stock market value in 2006 reflect a healthy adjustment to more sustainable levels and have not, to date, affected the banking sector or the real economy.
“The stable outlook reflects the balance between positive economic developments and the prospects for the success of the government’s ambitious and broad-based reform effort on the one hand, and escalating regional geopolitical risks on the other hand,” said Standard & Poor’s credit analyst Farouk Soussa.
The ratings will be raised if the security situation in Iraq improves and the uncertainty surrounding the Iranian nuclear fuel program crisis is resolved. Conversely, the government’s creditworthiness could come under downward pressure if there is a reversal in the fiscal discipline hitherto adhered to by the government, its debt burden increases significantly, external liquidity is impaired, or domestic and regional political risks increase.