| DUBAI, March 22
DUBAI, March 22 Fitch Ratings cut its assessment
of Saudi Arabia's credit quality on Wednesday, citing
deterioration of state finances due to low oil prices and doubts
over whether Riyadh can achieve its economic reform plans.
Prices of Saudi bonds stayed firm, however.
Fitch downgraded Saudi Arabia by one notch to A+ with a
stable outlook from AA- with a negative outlook. It said that
that while the leadership was strongly committed to diversifying
the economy beyond oil, that intention might not be enough.
"In Fitch's view, the scale of the reform agenda risks
overwhelming the government's administrative capacity," the
ratings agency said in a statement, .
It said planned hikes in domestic energy prices to cut the
government's subsidy burden could severely hurt energy-intensive
industries, while higher fees for hiring foreign workers -- part
of an effort to increase employment for Saudi citizens -- could
undermine large parts of the private sector.
However, bond prices firmed, with the Saudi government's
U.S. dollar bonds maturing in 2021 yielding
around 2.85 percent compared with a close of 2.897 percent on
Tuesday. Its 2026 bonds traded at 3.66 percent
against 3.726 percent.
A Lebanon-based trader said the downgrade was creating some
activity in the bonds, but that the price changes were minimal.
Traders noted that Fitch's downgrade merely brought its
rating closer to the other two major rating agencies. Standard &
Poor's rates the kingdom A-, two notches below Fitch, while
Moody's has it at A1, level with Fitch.
All three agencies now have stable outlooks on Saudi Arabian
debt, suggesting there is no imminent risk of any further
In a statement responding to Fitch's move, Saudi Finance
Minister Mohammed al-Jadaan said the economy and the
government's balance sheet were fundamentally strong.
"The Saudi economy has structurally aligned itself to a
lower oil price environment as reflected in a more sustainable
balancing price for its fiscal and current accounts," he said.
Financial market movements in the past few months suggest
many investors agree. Measures of stress in the financial system
have fallen sharply; this month the cost of insuring Saudi
sovereign debt against default hit its lowest
since September 2015.
(Editing by Jeremy Gaunt)