In a report published on Thursday, Moody’s Investors Service says that Saudi Arabia’s Aa3 government bond rating and stable outlook reflect the Kingdom’s considerable economic and government financial strength.
In recent years windfall oil revenues have generated large fiscal surpluses, allowing the government to build a sizeable asset cushion and sharply reduce its debt ratios, to levels much lower than its peers.
The rating agency’s report is an annual update to the markets and does not constitute a rating action.
Moody’s notes that Saudi Arabia’s economy has performed well since the 2008 global financial crisis. Real GDP growth averaged 6.3 percent between 2008 and 2012, making Saudi Arabia one of the fastest growing economies globally.
Saudi Arabia’s rating constraints are mainly institutional. World Bank governance indicators place Saudi Arabia lower than most of its peers, although financial sector supervision by the Saudi Arabian Monetary Authority (SAMA) proved effective through the global financial crisis.
Saudi Arabia has made notable progress in increasing transparency, particularly in its external financial data. Nevertheless, the overall scope and timeliness of data lags that of most other highly rated countries globally.
Saudi Arabia’s fiscal breakeven oil price (the hypothetical Brent price at which the budget is in balance) of around $74 per barrel (2012 IMF estimate) has remained well below spot market forecasts of over $105 in 2013 and 2014. However, we expect that the breakeven price will increase in the coming years, as the government ramps up budgetary spending. Risks to the Kingdom’s fiscal buffers are long term.