RAM Ratings: Saudi Arabia's Rating Downgraded to gAA3(pi) on Fiscal and External Deterioration

RAM Ratings: Saudi Arabia's Rating Downgraded to gAA3(pi) on Fiscal and External Deterioration
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- 11 /19/2016 Latest Announcement - (News ID : 2016111800023) Latest Announcement News ID : 2016111800023 Subject : Saudi Arabia Saudi Arabia Organisation Name: RAM RATING SERVICES BERHAD News Type: RATING ANNOUNCEMENT Reference Site: None Embargo Date: 18/11/2016 Embargo Time: 04:32 PM Expiry Date: 18/12/2016 Priority: Medium Summary: RAM Ratings: Saudi Arabia's rating downgraded to gAA3(pi) on fiscal and external deterioration Attachments: No attachment available. Disclaimer: The user, including a user who is also a FAST Participant, expressly agrees that the use of this website which is accessible at https://fast.bnm.gov.my/ is at the user's sole risk. The information contained in this FAST website is compiled by MyClear Sdn. Bhd. (MyClear) and is provided on an "as is" basis without any representations or warranties of any kind, either expressed or implied. While MyClear makes every effort to ensure that information contained in the FAST website are accurate and disseminated in a timely and efficient manner, the user acknowledges that delays, errors, omissions or inaccuracies may occur. MyClear disclaims any liability pertaining to the consequences of any delays, errors, omissions or inaccuracies arising out of or relating to the FAST website or information, including but not limited to, any decision made or action taken by a user in reliance upon such information, or for damages suffered, whether direct, consequential, special, punitive, indirect or otherwise, notwithstanding having been advised of the possibility of such damages. In the event of any dispute, the official records of MyClear shall prevail. MyClear, Bank Negara Malaysia or any of its affiliates, officers, directors, agents or any other party involved in creating, producing or delivering the FAST website, shall not be liable for any direct, consequential, special, punitive, indirect, incidental or other damages arising out of or in any way connected with the use or inability to use the FAST website or information, whether based on contract, tort, liability or otherwise, even if advised on the possibility of any such damages. Content RAM Ratings has downgraded Saudi Arabia's globalscale rating to gAA3(pi)/Stable from gAA2(pi)/Negative in view of the country's steep fiscal and current account deterioration in 2015 and our projection of wide twin deficits from 20162017 compared to similarly rated peers. Credit deterioration was primarily led by a sharp decline in oil prices the previous year and a slower than anticipated price recovery in 2016. ''While the Saudi government's fiscal consolidation is deemed necessary, it has adversely impacted consumption and business activities, posing a drag on the economy,'' highlights Esther Lai, RAM's Head of Sovereign Ratings. Economic growth slowed down to 1.5% in 1H 2016 (2015: 3.5%), with most of the nonhydrocarbon sectors, such as wholesale and retail trade as well as building and construction, showing decelerating or contracting growth amid government fiscal adjustments. The Saudi economy is forecasted by the IMF to decelerate to 1.2% for the full year. While National Transformation Plan (NTP) reforms aim to further strengthen the private sector and reduce reliance on public sectorled growth, we remain wary of implementation challenges and the economy's flexibility in adjusting to such reforms. RAM estimates that the country's sovereign reserves which include official foreign reserves and government deposits with banks will decline to 128.6% of GDP in 2016 (2015: 143.4%), with fiscal and current account deficits still projected for the year. In addition, government debts are forecasted to pick up to 12.6% of GDP in 2016 from the previous year's 5.9% but remain low. While Saudi Arabia will experience twin deficits, it will stay in a net asset position. The government has implemented meaningful fiscal adjustments, such as the rationalisation of fuel and utility subsidies, reduction of civil servant salaries and benefits, as well as the deferral/cancellation of capital projects since early this year. While these measures are supportive of mediumterm fiscal sustainability, resultant expenditure savings are not expected to drastically improve government finances in the near term, given that oil prices are unlikely to stage a strong recovery. Further, the government's objective under the NTP of achieving a fiscal balance by 2020 is deemed ambitious and only plausible if large proceeds from the privatisation of stateowned assets materialise. Analytical contact Media contact Cheong Kah Weng Padthma Subbiah (603) 7628 1113 (603) 7628 1162 kahweng@ram.com.my padthma@ram.com.my 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' creditrelated analyses and commentaries, where relevant. 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