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Fitch changes Saudi Arabia's outlook to positive

"High oil prices continue to strengthen the government's domestic and external balance sheets," said Charles Seville, associate director in Fitch's sovereign team. Further improvements in credit ratios will increase Saudi Arabia's resilience to an oil price shock and be positive for the ratings. The government is using its fiscal surplus — which reached 25 per cent of GDP in 2006 — to pay down domestic debt, build external assets and invest in infrastructure to enhance economic and social development.

Domestic debt on a consolidated general government basis fell to just 8.4 per cent of GDP last year, one of the lowest ratios of any rated sovereign. Saudi Arabia is also one of the very few sovereigns with no external debt. With a large part of the fiscal surplus being invested overseas, the net public external creditor position is forecast to increase by $40 billion by end-2007 to 108 per cent of current account receipts, a position that is surpassed only by countries rated in the 'AA' category or above, including Kuwait. Non-reserve external assets reached $250 billion at end-2006, with Saudi Arabia being more transparent about these holdings than other GCC countries. "Every dollar that Saudi Arabia adds to its external assets improves its ability to cope with any future oil price shock," said Seville. "At such high rating levels, the net external creditor position is an essential counterweight to the economy's dependence on oil, with oil and gas accounting for half of total GDP." A sharp fall in oil prices is still the main economic risk. Saudi Arabia is much better positioned for such a fall than at the time of the last oil price shock in 2001.