Saudi Arabia’s economic prospect has been hit with more bad news after the kingdom was downgrading by Fitch Ratings. The agency, considered one of the largest ratings firms in the world, lowered Riyad’s rating from A+ to A citing vulnerabilities in the kingdom’s economic infrastructure, diminishing financial reserves, deteriorating balance sheets and rising government debt.
The New York based rating group announced the forecast yesterday to the dismay of the Saudis who have insisted that the kingdom, despite its recent set-back following the attack on its oil installation over two weeks ago, has shown resilience.
“We believe that there is a risk of further attacks on Saudi Arabia, which could result in economic damage,” Fitch was reported saying in the Financial Times. The agency explained that it feared the Saudis may be drawn into a regional escalation of tension with Iran and its proxies.
“Saudi Arabia is vulnerable to escalating geopolitical tensions given its prominent foreign policy stance, including its close alignment with US policy on Iran and its continued involvement in the Yemen war,” Fitch added.
A number of other factors were cited for the downgrade. Saudi Arabia’s diminishing financial reserves are a concern and are said to be “deteriorating” to 64 per cent of GDP by the end of 2021, compared with 87 per cent in 2017. Government debts are also expected to rise to 26 per cent of GDP in 2021.
Saudi Arabia’s Ministry of Finance is reported expressing disappointment with what it described as the “somewhat speculative” downgrade. It pointed to the kingdom’s ability to recover from a major setback and cited the speed with which it returned to full oil production, reaching 11.3 million barrels a day capacity, only two weeks after half of the country’s production capacity was taken out by a series of drone strikes on its main oil facilities.
“The event highlights Saudi Arabia’s outstanding capacity to effectively deal with adversities,” it said in a statement, which called for Fitch to revise the downgrade.
The downgrade has the potential to dent investor confidence, a prospect which the kingdom can ill afford. Riyadh, under the Crown Prince Mohamed Bin Salman, has embarked on the largest modernisation programme in the country’s history. To succeed it needs to attract investment from foreign companies but confidence in the Saudis has suffered a major blow.
MBS, as he is popularly known, has gained a reputation for being rash and hasty. Many see him as being the author of his own destruction having taken the disastrous step of launching a military attack on Yemen, which has prompted the worst humanitarian crises since the Second World War. MBS has also supported the US in imposing sanctions on Iran, a move that began the escalation of tensions in the region. But perhaps the issue that has threatened to derail his modernisation plan more than anything is the widely held perception that he ordered the murder of Saudi journalists Jamal Khashoggi one year ago.