Saudi Arabia: risk assessment

Country Risk Assessment:

Sovereign risk Currency risk Banking sector risk Political risk Economic structure risk Country risk
January 2011 BBB BBB BB B BBB BBB

Sovereign risk
Stable. The sovereign’s creditworthiness is not in question, given its large stock of financial assets and its fiscal and current-account surpluses. The main constraint on the rating remains the dependence of the public finances on oil, which generates 80-90% of fiscal revenue.

Currency risk

Stable. Saudi Arabia and three neighbouring states are pressing ahead with monetary union. The currency is unlikely to come under pressure as foreign capital inflows have been stable and the central bank has almost US$450bn in foreign currency and securities to back up its commitment to the peg.

Banking sector risk

Stable. Banks remain well capitalised but have been increasing provisions for bad loans. Defaults by two major family firms have led to concerns over solvency, which could make private borrowing from abroad expensive despite the strong capital bases of banks and government guarantees of bank deposits.

Political risk

Al Saud rule is unlikely to face any significant threats, although tensions could emerge over the succession. Institutional effectiveness will remain limited and corruption is pervasive.

Economic structure risk

Oil accounts for some 90% of export and government revenue. As a result, the economy is vulnerable to shifts in world oil prices and domestic oil output.

SOURCE: Country Risk Service