For the second time in four months, S&P has downgraded Saudi Arabia.
In late October, the ratings agency flagged sharply lower oil prices and the attendant fiscal deficit (16% in 2015) on the way to cutting the kingdom to A+ outlook negative.
At the time, S&P projected the deficit would amount to 10% of GDP in 2016. That turned out to be optimistic as the shortfall is now projected to be around 13% and that's assuming crude doesn't fall below $30 and stay there.
Riyadh has cut subsidies in an effort to shore up the books, but between the war in Yemen and defending the riyal peg, there's no stopping the red ink, especially not while the kingdom remains determined to wage a war of attrition with the US shale complex.
Moments ago, S&P downgraded Saudi Arabia again, to A-.
On the bright side, the outlook is now "stable" (chuckle).
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Oil prices have fallen further since our last review of Saudi Arabia in October 2015, and we have cut our oil price assumptions for 2016-2019 by about $20 per barrel. In our view, the decline in oil prices will have a marked and lasting impact on Saudi Arabia's fiscal and economic indicators given its high dependence on oil.
We now expect that Saudi Arabia's growth in real per capita GDP will fall below that of peers and project that the annual average increase in the government's debt burden could exceed 7% of GDP in 2016-2019.
We are therefore lowering our foreign- and local-currency sovereign creditratings on Saudi Arabia to 'A-/A-2' from 'A+/A-1'.
The stable outlook reflects our expectation that the Saudi Arabian authorities will take steps to prevent any further deterioration in the government's fiscal position beyond our current expectations.
On Feb. 17, 2016, Standard & Poor's Ratings Services lowered its unsolicited long- and short-term foreign- and local-currency sovereign credit ratings on the Kingdom of Saudi Arabia to 'A-/A-2' from 'A+/A-1'. The outlook is stable.
At the same time, we revised downward our transfer and convertibility (T&C) assessment on Saudi Arabia to 'A' from 'AA-'.
We now anticipate a current account deficit, equivalent to 14% of Saudi GDP in 2016, compared with 6% of GDP in our October review.
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Other Gulf oil producers got the knife as well as Oman and Bahrain were cut to BBB- and junk, respectively.
- S&P: OMAN CUT TO BBB-FROM BBB+; OUTLOOK TO STABLE FROM NEG
- BAHRAIN CUT TO JUNK BY S&P ON LOWER OIL PRICE ASSUMPTIONS
Here's the punchline from S&P: "We do not expect the agreement on Feb. 16 between oil ministers from Qatar, Russia, Saudi Arabia, and Venezuela to freeze oil output."
We don't either.
Finally, we ask "who knew what yesterday?"