KSA, S&P Spat Continues Over Ratings

Saudi Arabia may consider increasing domestic energy prices, the introduction of VAT and the installation of nuclear and solar power. REUTERS/Faisal Al Nasser

By Staff Reporter

DUBAI, Oct. 31 Saudi Arabia’s Ministry of Finance accused ratings agency Standard and Poor’s of acting “on an unsolicited basis” few hours after the agency downgraded the Kingdom’s credit ratings to A+ with a negative outlook.

The ministry further challenged economic data provided by S&P, saying the Kingdom’s economy had already taken provisional measures to weather any slump in commodities prices.

“The Ministry of Finance strongly disagrees with S&P’s approach to ratings management in this particular instance. We consider S&P’s credit assessment reactionary, driven by fluid market factors rather than changes in the fundamentals of the sovereign,” the ministry was quoted as saying by Saudi Press Agency on Saturday.

The ministry explained that in less than a year, S&P went from a positive outlook on the AA- rating to a negative outlook on the A+ rating, on the back of changes in the global oil price dynamics.

Standard and Poor’s Ratings Services had lowered, late Friday, its unsolicited long-and short-term foreign- and local-currency sovereign credit ratings on Saudi Arabia to ‘A+/A-1’ from ‘AA-/A-1+’. It kept its outlook for the Kingdom as negative.

It further revised its transfer and convertibility (T & C) assessment on Saudi Arabia to ‘AA-‘from ‘AA.’

The action came following Saudi Arabia’s termination of its rating agreement with S&P. The ratings agency says it has decided to convert its issuer credit rating on Saudi Arabia to “unsolicited” after the rating agreement was terminated.

“We believe that S&P’s decision was not only rushed, but analytically inconsistent with the idea of ratings being a medium-term tool meant to look through the cycle while assessing creditworthiness. This opinion is further reinforced by the vast difference in approach and credit view demonstrated by the other agencies,” the ministry added.

In the meantime, the Kingdom’s fundamentals “remain strong with the sovereign’s net asset position well in excess of 100% of GDP and backed by substantial foreign exchange reserves,” according to the ministry of finance.

It added that the Kingdom’s economy continued to grow in real terms “despite the environment of weak commodity prices,” while a thorough fiscal consolidation plan “has been announced to ensure that existing buffers remain sufficiently large.”

S&P expected Friday that Saudi Arabia’s “general government fiscal deficit [to] increase to 16% of GDP in 2015, from 1.5% in 2014, primarily reflecting the sharp drop in oil prices.”
According to the ratings agency, hydrocarbons account for nearly 80% of Saudi Arabia’s fiscal revenues.

With the absence of rebound in oil prices, S&P forecast a “general government deficit of 10% of GDP in 2016, 8% in 2017, and 5% in 2018.”

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