S&P Lowers Saudi Arabia's Credit Outlook to Negative from Stable

Standard & Poor's Ratings Services has revised its outlook on the Kingdom of Saudi Arabia to negative from stable.

S&P notes:

 Prices for crude oil in spot and futures markets have fallen by more than 50% since June 2014, leading S&P to revise down its oil price assumptions significantly over 2015-2018. When we last reviewed Saudi Arabia, in December 2014, we expected Brent oil prices to average $80 per barrel (/bbl) in 2015 and $85/bbl in 2015-2018. We now assume an average Brent oil price of $55/bbl in 2015 and $70/bbl in 2015-2018.

Saudi Arabia derives about 40% of its GDP, 90% of government revenues, and 85%
of exports from the hydrocarbons sector, reports S&P.

S&P further adds:

We view Saudi Arabia's economy as undiversified and vulnerable to a steep and sustained decline in the oil price, notwithstanding government policy to encourage non-oil private sector growth. We find that the non-hydrocarbon sector relies to a large extent on government spending (funded by hydrocarbon revenues) and downstream hydrocarbon activities.

With regard to the long-term outlook, S&P advises:

 We could lower the ratings over the next two years if the government's liquid assets fell well below 100% of GDP or its overall fiscal performance significantly weakened by our estimates. The
ratings could also come under pressure if domestic or regional events compromised political and economic stability.

The ratings could stabilize at current levels if the combination of policy choices by the Saudi authorities and external economic conditions preserve the government's exceptionally large liquid asset position close to current levels, which provide the government with an exceptional buffer during periods of economic or financial shocks.

   -RW