Fitch Ratings downgraded Tuesday Saudi Arabia’s long-term issuer default rating to AA-from AA, and said its oil price assumptions have “major negative implications” for the country’s fiscal and external balances.
Fitch said it is expecting oil to average $35 a barrel in 2016 and $45 a barrel in 2017.
The Saudi government deficit widened to 14.8 percent of GDP in 2016, after 2.3 percent in 2014 and surpluses for the years since 2010. Fitch is expecting that ratio to narrow slightly in 2016 and a bit more substantially in 2017.
“A large share of the government’s financing needs will be funded by disposing of foreign financial assets, but the government has also started raising debt domestically,” Fitch wrote in a statement.
The government is in talks on a syndicated loan of up to $10 billion and is planning a first Eurobond issue later this year. Fitch said a continued deterioration of fiscal balances, or slower-than-expected narrowing of the fiscal deficit would be factors that could lead to a downgrade, along with potential spillover from regional conflicts.
The outlook is negative, meaning Fitch does not expect near-term developments to lead to an upgrade.