$10bn Saudi loan bid reflects new era of cheap oil, says Fitch

Ratings agency says kingdom's move comes as pressure mounts on its fiscal balances amid low oil prices
$10bn Saudi loan bid reflects new era of cheap oil, says Fitch
By Staff writer
Fri 06 May 2016 09:32 AM

Saudi Arabia's move to raise $10 billion via an international bank loan reflects the pressure on its fiscal balances caused by lower oil prices, Fitch Ratings has said.

The agency said in a statement that over the longer term, international sovereign debt issuance may support the development of a market for Saudi corporate bonds.

Recent press reports said that Saudi Arabia had agreed a $10 billion, five-year loan from a group of US, European and Asian banks. Demand was strong for participation in the syndicated loan, which will be the kingdom's first international borrowing since 1991.

Fitch said a large share of the government's financing needs will be funded by disposing of foreign financial assets.

"Building up the sovereign's international borrowing capacity would increase financing flexibility at a time when fiscal and external balance sheets are still strong. It also lessens the erosion of external buffers caused by lower oil prices, but this will still be substantial," it said in the statement.

As a result of declining assets and rising debt, Fitch added that it forecast the sovereign net foreign asset position to fall to 78 percent of GDP in 2017 from 113 percent in 2014.

Last week, Fitch downgraded Saudi Arabia's long-term foreign and local currency issuer default ratings (IDRs) to 'AA-' from 'AA', with outlooks remaining negative.

The agency said that the downward revision of its oil price assumptions for 2016 and 2017 would have major negative implications for Saudi Arabia's fiscal and external balances.

The central government deficit widened to 14.8 percent of GDP in 2015, after a deficit of 2.3 percent in 2014 and continuous surpluses in previous years since 2010.

Fitch said it forecasts the deficit-to-GDP ratio to narrow only marginally in 2016 and, on the back of a moderate recovery in oil prices, more substantially in 2017.

It added that 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.

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