Moody's revises Saudi Arabia's credit outlook

Moody's revises Saudi Arabia's credit outlook

Moody's downgraded Saudi Arabia's sovereign outlook to negative from stable, citing increased downside risks to the kingdom's fiscal strength from the oil rout. 

"The shock transmits mainly through the loss in government revenue and exports caused by the drop in oil demand and prices," a group of Moody's analysts led by Lucie Villa wrote in a report.

She continued: "The government's balance sheet has weakened since the previous oil price shock in 2015-16, notwithstanding some recent improvements in budget execution, leaving the sovereign's credit profile exposed to the further prolonged period of depressed oil prices that the pandemic may usher in."

Moody's now expects that Saudi Arabia's government revenues will drop 33% in 2020 and 25% in 2021, according to the report. The decline is likely even after accounting for potentially higher dividends from state-owned entities, according to Moody's. 

A sharp decline in the country's gross domestic product growth will also depress revenue outside of oil, according to the report. Forecasts are calling for a GDP decline of as much as 3.2%, according to CNBC. In the medium term, Moody's forecasts that debt will grow to around 45% of GDP.

Over the weekend, the Saudi finance minister Mohammed al-Jadaan said that the country will have to take strict and painful measures amid the coronavirus crisis, according to CNBC.