Saudi Arabia upgraded to ‘AA-/A-1+’

Standard & Poor’s Ratings Services said that it raised its foreign and local currency long-term sovereign credit ratings on the Kingdom of Saudi Arabia to ‘AA-‘ from ‘A+’. At the same time, the local and foreign currency short-term ratings were raised to ‘A-1+’ from ‘A-1’. The outlook is stable.

Standard & Poor’s also raised the transfer and convertibility (T&C) assessment on Saudi Arabia to ‘AA+’ from ‘AA’.

“The upgrade primarily reflects Saudi Arabia’s extremely strong and rapidly improving external and fiscal positions,” said Standard & Poor’s credit analyst Ben Faulks.”

Driven by record oil receipts, foreign reserves and liquid foreign assets managed by the Saudi Arabian Monetary Agency (SAMA) have increased sharply in recent years, and are expected to top $330 billion by year-end 2007 (versus $136 billion in 2004). This will be sufficient to cover about 26 months of current account payments (including private transfers). Overall, Saudi Arabia stands to have a net external asset position of 115% of GDP by year-end 2007.

“The stable outlook reflects the balance between Saudi Arabia’s prospects for continued strong oil revenues and the government’s success with its ambitious and broad-based reform effort, on the one hand, and high regional geopolitical risks, on the other.”

The ratings are likely to be raised if regional geopolitical risks abate, or if progress is made in addressing social concerns, particularly unemployment.

Conversely, the sovereign’s creditworthiness could come under downward pressure if there is a reversal in the fiscal discipline adhered to by the government so far, the debt burden increases significantly, external liquidity is impaired, or domestic and regional political risks increase.