Moody’s downgrades Saudi Arabia’s outlook to ‘negative’ on crash in oil prices

Rating agency Moody’s cut Saudi Arabia’s outlook to “negative” from “stable” on Friday, citing the risks to the Kingdom’s fiscal strength due to the crash in oil prices.

It, however, affirmed the sovereign credit rating at “A1”, saying the Kingdom’s government still has a “relatively robust, albeit deteriorating” balance sheet, moderate debt level and substantial fiscal and external liquidity buffers.

The agency said that Saudi’s vulnerability to the decline in oil prices was balanced by its very large hydrocarbon reserves and low extraction costs, which support economic resiliency even in an environment of low oil prices.

“The negative outlook reflects increased downside risks to Saudi Arabia’s fiscal strength stemming from the severe shock to global oil demand and prices triggered by the coronavirus pandemic, and from the uncertainty regarding the degree to which the government will be able to offset its oil revenue losses and stabilize its debt burden and assets in the medium term,” Moody’s said.

The agency said Saudi Arabia is facing loss in government revenue and exports due to the drop in oil demand and plummeting prices.

“The government’s balance sheet has weakened since the previous oil price shock in 2015-16, notwithstanding some recent improvements in budget execution, leaving the sovereign’s credit profile exposed to the further prolonged period of depressed oil prices that the pandemic may usher in.”

Demand for oil plummeted by a third due to lockdowns and business shutdowns amid the coronavirus pandemic.