Ratings agency Fitch said on Wednesday it upgraded Saudi Arabia's long-term local and foreign currency issuer ratings to AA- from A+, citing high oil prices. Fitch also revised the outlook on Saudi Arabia's ratings to stable from positive. The ceiling has also been upgraded to ‘AA' from ‘AA-' and the short-term international depositary receipt (IDR) has been upgraded to ‘F1+' from ‘F1', Fitch said. An IDR is a negotiable, bank-issued certificate representing ownership of stock securities by an investor outside the country of origin. “At today's oil prices, Saudi Arabia is earning around $1 billion a day from oil exports, reinforcing an already strong external balance sheet and creating a buffer against future shocks,” said Charles Seville, associate director in Fitch's sovereign team, in a statement. “Official external assets are expected to be well over 100 percent of GDP by the end of 2008, leaving Saudi Arabia second only to China as a net public external creditor.” The agency said the Kingdom's main credit strengths were its very low indebtedness and large domestic and external assets. General government debt, all of it domestic, fell to 7.2 percent of GDP at end-2007, while the wider public sector, represented mainly by profitable state-owned firms, has little external debt, it added. A strong banking system also makes for low contingent liabilities from that source, notwithstanding some acceleration in credit growth this year. Fitch said however the Kingdom's overwhelming dependence on oil - 90 percent of central government revenue comes directly from oil - left it exposed to a sharp drop in oil prices. It added tough that such a fall would have to be very steep to threaten sovereign creditworthiness. Based on Fitch's assumption of a $100/barrel average oil price in 2008, the fiscal surplus is forecast to reach 25 percent of GDP; the oil price that would reduce this to zero (the ‘breakeven' price) is around $51/barrel. Assuming a fall in the oil price to $75/barrel next year, the budget and current account surpluses would still be 13-14 percent of GDP with the net creditor position continuing to strengthen. Sizeable domestic and external assets, not to mention the capacity to borrow, would allow Saudi Arabia to withstand oil prices as low as $30/barrel for several years, without major spending adjustments. The ratings agency added that the government budgeted cautiously and could withstand oil prices as low as $30 a barrel for several years, without major spending adjustments, thanks in part to the Saudi's sizeable domestic and external assets, and capacity to borrow. Saudi Arabia's oil endowment is huge, but spread over a larger population than Kuwait (‘AA-' (AA minus)/Stable) or Abu Dhabi (‘AA'/Stable), resulting in a lower per capita income. Higher revenues are allowing the government to address poverty and promote economic diversification. Unemployment among Saudi males fell in 2007 for the first time in at least five years, to 8 percent from 9 percent, although youth and female unemployment is higher. The government is encouraging private sector investment to create jobs for a fast-growing population, while addressing the skills mismatches that have forced the private sector to turn to foreign labor to fill most jobs. According to the World Bank's annual “Doing Business” report, Saudi Arabia's business environment is the most favorable of any country in the GCC and compares well with other ‘AA' sovereigns. Sustained non-oil private sector GDP growth of 6 percent is accelerating and arguably more sustainable than in some neighboring countries, and will help raise incomes and employment opportunities over time. __
