S&P Global Ratings has affirmed Saudi Arabia's investment grade 'A-/A-2' foreign and local currency ratings, saying the recent shift in social norms and political power may make the region's biggest economy more attractive for investors.
These changes in the kingdom alongside various regional stresses, however, could increase the risk of policy mistakes, which could result in increased domestic and geopolitical tensions, Dubai-based analysts Trevor Cullinan and Benjamin Young said in a report on Tuesday.
"However, we also consider that these structural reforms could empower Saudi citizens and make Saudi Arabia more attractive to investors over the medium term, as the authorities intend," they noted.
The rating agency maintained the kingdom's stable outlook, based on the expectation that Saudi Arabian authorities will take further measures to consolidate public finances, and ensure that the government's liquid assets are close to 100 per cent of gross domestic product in the next two years.
The kingdom, the world's top oil exporter and Opec's biggest crude producer, has narrowed its budget deficit in the third quarter. Saudi Arabia's rating places it firmly in the middle of investment grade territory at the rating agency, meaning that it is highly unlikely that the kingdom would default on its borrowings.
S&P said that it could lower Saudi Arabia's ratings if it witnessed a deterioration in the country's public finances, which have suffered in recent years from a sharp decline in oil prices. The price of crude lost more than 70 per cent of its value from mid-2014 before rebounding slightly over the past year to reach around current $62 a barrel level.
"We expect the oil sector's contribution to real economic growth in 2017 and 2018 to be largely flat," the analysts said. "Non-oil sector growth will likely remain the economic driver, but at a subdued 1 per cent in 2017 and 2018."