ABC Finance

Saudi Arabia’s credit rating was raised by Moody’s Investors Service, which cited “strong” government finances that have withstood volatile oil prices and the global recession.

The kingdom’s foreign- and local-currency government debt ratings were raised one notch to Aa3, the fourth-highest grade, from A1 with a stable outlook, Moody’s said in a statement in Singapore today. It also increased the country’s ceiling for foreign-currency bank deposits to the same level.

“The upgrade was prompted by the continued strong state of government finances, which have largely withstood oil price volatility and the global economic crisis,” Moody’s said.

For the rating to move higher, “Moody’s will assess prospects for the continued strength in public sector finances and the success of the government’s infrastructure program in improving the country’s long-term competitiveness and economic strength,” Thomas Byrne, a senior vice president at Moody’s in Singapore, said in the statement.

Saudi Arabia’s rating upgrade comes as investors increase scrutiny on government finances of some European nations on concern widening budget deficits will make it difficult for the countries to repay their debt.

Greece, Spain and Portugal are among those struggling to control their budget gaps, prompting investors to dump the countries’ assets and question the sustainability of the recovery in the global economy. More than $3.6 trillion has been wiped from stocks worldwide since Jan. 14, while credit-default swaps have risen as investors seek protection against deteriorating European government finances.

Regional Comparison

Saudi Arabia is now one rank below Abu Dhabi, Kuwait, Qatar and the United Arab Emirates, all rated at Aa2. Dubai, the second-biggest of seven states that make up the United Arab Emirates, in November announced that state-owned Dubai World would seek to delay debt repayments free business cards. Abu Dhabi on Dec. 14 provided $10 billion to help Dubai World avoid defaulting on a $4.1 billion bond payment.

Saudi Arabia’s economy will grow more than 4 percent in 2010 after expanding 0.2 percent last year, Finance Minister Ibrahim al-Assaf said Feb. 11.

Moody’s said the Middle Eastern nation’s banking system had absorbed shocks from the global credit crisis and the current account has probably stayed in surplus.

‘Stable Outlook’

“The kingdom’s banking system is only one of a few globally to have maintained a stable outlook during the crisis,” Moody’s said. “It has demonstrated the ability to absorb and contain shocks emanating from the global financial crisis, Dubai and domestic corporate debt problems.”

Banks in Saudi Arabia, where lending to non-government companies shrank 0.3 percent last year, are returning to project finance as the government spends more to stimulate the economy, Samba Financial Group said in a report this month.

The kingdom, the world’s largest oil exporter, last year announced that it would spend $400 billion on infrastructure over a five-year period to bolster the economy. The country is allocating almost $70 billion to investments this year, a 16 percent increase on 2009.

About half of its $400 billion economic development plan has been spent and the government may finish the program ahead of schedule, al-Assaf said last week.

Any downward pressure on Saudi Arabia’s rating would stem from a “sharp, secular decline” in oil prices, or an inefficient public expenditure program, the ratings company said, adding that it considers both scenarios remote.

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Filed under: finance by Specialist