JEDDAH: Fitch Ratings has affirmed Saudi Arabia's long-term local and foreign currency Issuer Default Ratings (IDR) at ‘AA-', with stable outlooks. The Kingdom ceiling is affirmed at ‘AA' and the short-term foreign currency IDR at ‘F1+'. “Recent royal decrees in the wake of regional political unrest will increase spending, but this will not endanger Saudi Arabia's strong fiscal position and balance sheet, which underpin the ratings,” said Charles Seville, director in Fitch's sovereign team. “Moreover, while Saudi Arabia shares some features with those MENA (Middle East and North Africa) countries which have recently suffered unrest, there are also major differences, notably the government's ability to alleviate socio-economic problems from increasing oil revenues.” The total value of commitments under the two separate packages of decrees was up to SR450 billion or 25 percent of 2011 forecast GDP), but most of the spending will be spread over several years. Spending could rise by 30 percent this year, driven in part by one-off items, but the government would still run a surplus of 7 percent of GDP. Saudi Aramco has raised oil production by 10 percent since January to make up for the halting of Libyan exports, while Fitch assumes Brent will average $100 per barrel this year, following the steep recent rise in prices. By comparison, the fiscal breakeven oil price climbs to around $80 per barrel at present production levels, higher than in the recent past, but still comfortable. Saudi Arabia has one of the strongest balance sheets among Fitch-rated sovereigns, mitigating vulnerability to an oil price correction. Sovereign net foreign assets were $539 billion (124 percent of GDP) as of December 2010, allowing the government to easily finance unforeseen deficits from deposits. Moreover, the sovereign has even greater financing flexibility, with a developed domestic capital market and consolidated debt below 4 percent of GDP. Nevertheless, the spending increase has eroded the value of government assets in terms of years of prospective government spending, a measure of fiscal resilience, to below its 2009 peak. Real GDP growth recovered to 3.8 percent in 2010 and will be around 6 percent this year, driven by an increase in oil production and the impact of the government spending boost.
