Moody's cuts Saudi Arabia's credit outlook to negative, cites oil-price shock driven by coronavirus

• Moody's downgraded Saudi Arabia's sovereign outlook to negative from stable on Friday, citing increased downside risks to the kingdom's fiscal strength from the oil rout.
• "The government's balance sheet has weakened since the previous oil price shock in 2015-16, notwithstanding some recent improvements in budget execution, leaving the sovereign's credit profile exposed to the further prolonged period of depressed oil prices that the pandemic may usher in," Moody's wrote.
• Over the weekend, the Saudi finance minister said the kingdom will take strict and painful measures to reduce its budget, CNBC reported.
• Read more on Business Insider.

The coronavirus pandemic has cratered global oil demand and sent prices plummeting, even into negative territory for the first time ever. That's not a good thing for oil-rich Saudi Arabia.

On Friday, Moody's downgraded Saudi Arabia's sovereign outlook to negative from stable, citing increased downside risks to the kingdom's fiscal strength from the oil rout.

"The shock transmits mainly through the loss in government revenue and exports caused by the drop in oil demand and prices," a group of Moody's analysts led by Lucie Villa wrote in a Friday report.

She continued: "The government's balance sheet has weakened since the previous oil price shock in 2015-16, notwithstanding some recent improvements in budget execution, leaving the sovereign's credit profile exposed to the further prolonged period of depressed oil prices that the pandemic may usher in."

The coronavirus pandemic has created uncertainty in the global economic outlook and pushed many countries around the world into recession. Oil demand has also taken a significant hit as most nonessential travel has been banned, and consumers are driving less to maintain strict social-distancing measures.

Moody's now expects that Saudi Arabia's government revenues will drop 33% in 2020 and 25% in 2021, according to the report. The decline is likely even after accounting for potentially higher dividends from state-owned entities, according to Moody's.

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A sharp decline in the country's gross domestic product growth will also depress revenue outside of oil, according to the report. Forecasts are calling for a GDP decline of as much as 3.2%, according to CNBC. In the medium term, Moody's forecasts that debt will grow to around 45% of GDP.

Over the weekend, the Saudi finance minister Mohammed al-Jadaan said that the country will have to take strict and painful measures amid the coronavirus crisis, according to CNBC.

"We must reduce budget expenditures sharply," al-Jadaan told Al Arabiya TV on Saturday, CNBC reported. "Saudi finances need more discipline and the road ahead is long."

Moody's affirmed Saudi Arabia's A1 rating, saying that it is "supported by the government's still relatively robust, albeit deteriorating, balance sheet, which is underpinned by a still-moderate debt level and substantial fiscal and external liquidity buffers."

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