Prolonged low oil prices, coronavirus crisis could hurt Saudi

      Published on Wednesday, 1 April , 2020      353 Views     
Prolonged low oil prices, coronavirus crisis could hurt Saudi


Saudi Arabia continues to show resilience despite the current challenges posed by the coronavirus outbreak, but it could face some downside if oil prices will remain low for a longer period, analysts have suggested.

US-based international credit ratings agency Standard & Poor’s (S&P) has said it is affirming its A-/A-2 long- and short-term sovereign credit ratings on Saudi Arabia, with a stable outlook.




The latest positive review is due to analysts’ expectation that the current low oil price environment, although affecting fiscal flows, will be counterbalanced by the country’s strong government and external balance sheets.

“But prolonged low oil prices will erode [Saudi Arabia’s] net asset stock and begin to put pressure on the ratings,” S&P said.

So far, the kingdom has at least 1,200 cases of coronavirus. It was one of the first countries in the Gulf Cooperation Council (GCC) region to tighten its borders and implement a series of precautionary measures to stem the spread of the virus.

At the March 6 meeting of the Organization of the Petroleum Exporting Countries (Opec), Saudi Arabia and Russia failed to reach a deal on continued oil supply cuts, raising the prospect of the producers pumping more oil into the global market despite slowing demand tied to the health crisis.

The failed agreement resulted in a huge decline in global oil prices, which in turn, could trigger a sharp rise in Saudi Arabia’s fiscal deficit in 2020.

S&P said Saudi Arabia’s strong net asset position on both its fiscal and external balances continues to be a key ratings support.

But prolonged low oil prices will erode its net asset stock and begin to put pressure on the ratings,” it added.

The agency said it could lower its ratings if it sees fiscal weakening beyond its expectations or a sharp deterioration in the sovereign’s external position.

“A sustained rise in geopolitical or domestic political instability, that posed a significant and continued threat to the oil sector, could also put downward pressure on the ratings,” S&P said.



“We could raise the ratings if Saudi Arabia’s economic growth prospects improve beyond our current expectations, for example, as a result of a sustained and significant pick-up in oil prices and volume demand, possibly tied to the end of the COVID-19 pandemic, a significant easing of US-China trade tensions, and a rebound of the global economy.”

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Category Coronavirus, Saudi News | 2020/04/01 latest update at 5:00 AM
Source : Zawya | Photocredit : Google
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