Country Risk Profile for KSA

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Saudi Arabia is in a strong position to mitigate the adverse impacts of the COVID-19 pandemic and the subsequent repercussions, due to numerous factors. Predominantly, the government balance sheet, recording just 22.8% of government debt to GDP (IMF, 2019) along with substantial government assets, have placed the country in a strong position to overcome the ongoing crisis.

However, given the substantially lower oil revenues, coupled with the fiscal measures put in place to address the impact of COVID-19, the government debt ratio is expected to climb significantly in 2020 and 2021 to around 37%. This is still a solid level that is envied by other countries, and the recovered oil price over the past few weeks will take some of the tail risk away.

Nevertheless, the sharp contraction of economic output in 2020, the uncertainty about how economic recovery will unfold, as well as the broad-based deterioration of key credit metrics such as debt ratios, fiscal and current accounts will also weigh on the credit quality of Saudi Arabia.

This assessment is accentuated if a stronger weight is put on environmental, social and governance factors that are becoming increasingly important, not to say de-facto standard, for international investors. The exposure to climate change transition risks to de-carbonize the economy is a substantial challenge and is being addressed by the Saudi Arabia’s Vision 2030, but the implementation of these measures remains to be seen. Similarly, putting a larger weight on social factors such as gender equality or inclusion would also weigh on the sovereign credit rating.

Chart 1: Shadow Rating for Saudi Arabia

Source:’s Shadow Credit Rating employs a combination of several fundamental sovereign credit models which are designed to give an early indication of upward or downward pressure on rating trends.

The shaded area of the chart above shows the range derived from various econometric and machine learning models that explain the average agency rating (i.e. S&P, Moody’s, Fitch) with a wide range of economic, financial and governance variables. The increase at the current end of the chart is the impact of the COVID-19 pandemic on sovereign risk variables. Overall, the shadow rating of Saudi Arabia also suggests that purely based on fundamentals and compared to other sovereigns, the international rating agencies have showed more leniency on the country and assigned ratings that were stronger than implied in fundamentals. The shadow rating puts some weight on governance indicators where the country scores relatively poorly. Similarly, the lack of economic diversification and related higher business cycle volatility are additional factors that weigh on the sovereign rating. The strong government debt ratios and low net external debt ratio are the key strength of the credit profile.

Saudi Arabia is currently rated A+ by Moody’s, one notch lower by Fitch at A and two notches lower by S&P at A-. Most recently in May 2020, Moody’s changed the outlook to negative while S&P’s confirmed the A- rating in March. The quant models would suggest that there is downside pressure on the rating.

The risk profile for KSA finds medium risks in respect to the sovereign and environmental, social and governance (ESG) risk while the AML country risk is currently assessed as low.

Sovereign Risk Score

The sovereign risk profile is supported by high level of wealth and low but rising government debt ratios. Large fiscal deficits and deteriorated current account weigh on the risk profile of KSA besides the structurally weak institutional quality as indicated by the World Bank governance indicators. In addition, the country faces the key challenge of diversifying its economic structure away from the strong reliance on commodities.

ESG Risk Score

In terms of environmental, social and governance risk factors, the country performs well in the area of educations and overall population health but lags behind in the areas of climate change, protection of biodiversity and social inclusion and equality.

AML Risk Score

The AML country risk of KSA is classified as low due to solid performance in the area of money laundering as indicated by the latest FATF technical and effectiveness assessment or financial secrecy index result. As already pointed out for the sovereign risk score, the main weakness of KSA is the relatively poor score of the quality of institutions.


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