Saudi Arabia Downgraded as Projected Deficit to Reach 16% of GDP

The oil crash is crushing Saudi Arabia’s budget.

Standard & Poor’s downgraded Saudi Arabia’s credit rating on Friday.

The dramatic plunge in oil prices over the past 18 months has caused a “pronounced negative swing” in Saudi Arabia’s financial picture, S&P warned.

The oil-rich kingdom has gone from a healthy budget surplus of 7% of GDP in 2013 to a projected deficit of 16% this year. S&P estimates that unless oil prices rebound meaningfully, Saudi Arabia will suffer deficits each of the next three years. A lower credit rating means that borrowing becomes more expensive.

S&P’s outlook on OPEC leader remains negative, leaving the option for the credit ratings firm to downgrade it further if the government fails to rein in deficits or runs low on cash.

It’s the latest alarm being raised on the trouble facing the oil-dependent Middle East.

The International Monetary Fund recently warned most countries in the region will run out of cash in five years or less if oil stays around $50 a barrel. That includes Saudi Arabia as well as Oman and Bahrain.

via CNN

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza