RAM Ratings: Saudi Arabia's Fiscal Position to Gradually Strengthen

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1. IB Press Release Service Published on :​ ​ IslamicBanker.com Publications: h ​ ttps://www.islamicmarkets.com/publications RAM Ratings: ​Saudi Arabia's Fiscal Position to Gradually Strengthen 26 January 2017 RAM Ratings expects Saudi Arabia's weak fiscal position to gradually recover, supported by increased hydrocarbon revenue from slightly improved global energy prices, with expenditure growth kept at a manageable level. Based on recently released official estimates of government finances, Saudi Arabia's fiscal deficit had narrowed to 9.7% of GDP in 2016 (in line with RAM's projection of a 10.6% deficit), owing to meaningful fiscal consolidation measures implemented in the past year despite government revenue being pressured in a low oil price environment. RAM had revised the country's rating downwards to gAA3(pi)/stable from gAA2(pi)/negative in November 2016 to reflect steep credit deterioration from lower hydrocarbon receipts. The bulk of Saudi Arabia's fiscal deficit was funded through a combination of debt issuances which saw the government's debt level rise to 13.2% of GDP in 2016 (2015: 5.8%), while the remainder was financed via the drawdown of fiscal reserves. Elsewhere, the 2017 budget of SAR 890 billion is deemed expansionary (7.8% higher than actual expenditure in 2016), with increased spending on development projects such as the upgrade of utility-related infrastructure, enhancement of transportation and connectivity, as well as the implementation of National Transformation Plan initiatives. Despite higher budgeted expenditure for the year, the government continues to emphasise on improving spending control and efficiency. We expect Saudi Arabia's extra-budgetary spending to be kept manageable, as evinced by the sustained reduction of its overspending ratio to -1.8% in 2016 from 42.5% in 2011. Further, we estimate the underlying oil price assumed by the government in the budget to be around US$52/barrel, which we view as realistic. We have also observed stronger budgetary management, an increasing revenue contribution from non-hydrocarbon sectors and further subsidy rationalisation featured in additional details disclosed on Saudi Arabia's medium-term fiscal reform objectives. ''We expect the implementation of these reforms to be challenging but nonetheless crucial to long-term fiscal sustainability, so as to avert a significant depletion of the country's sovereign reserves,'' highlights Esther Lai, RAM's Head of Sovereign Ratings. Organisation Name: News Type: RAM RATING SERVICES BERHAD RATING ANNOUNCEMENT
2. IB Press Release Service Published on :​ IslamicBanker.com Publications: h ​ ttps://www.islamicmarkets.com/publications Source: BNM Announcements Media Contacts Padthma Subbiah (603) 7628 1162 padthma@ram.com.my Disclaimer: The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security's market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations. RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings' credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications. Similarly, the disclaimers above also apply to RAM Ratings' credit ​related analyses and commentaries, where relevant.