SOVEREIGN AND SUPRANATIONAL
SECTOR IN-DEPTH
7 August 2017
Contacts
Irina Baron
Asst Dir-Research
Associate
irina.baron@moodys
Xian Li212-553-1404
Senior Research
Analyst
xian.li@moodys
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Sovereign Risk Report
Non-Oil Sector Growth Curbs Saudi
Arabia’s Credit Risk
Market price-based measures of credit risk for Saudi Arabia, one of the world’s largest oil
producers, rose in January to their worst levels since 2009, as the country’s economy was
roiled by the plunge in oil prices. Since then crude oil prices have rebounded significantly,
holding above $45 for most of 2017. Concurrently, Saudi Arabia, which relies on energy
exports for more than 80% of its revenue, saw its five-year Sovereign EDFTM (Expected
Default Frequency) metrics,1 which measures the expected probability of default over a five-
year time horizon, improve from its peak of 0.69% in January 2016 to its current level of
0.31% (Exhibit 1). Furthermore, the easing in the country’s sovereign credit risk sentiment
over the past week was the largest among the 70 sovereign entities that we track. This
decline was aided by the kingdom’s improved business conditions. According to the Emirates
NBD Saudi Arabia Purchasing Managers’ Index (PMI), economic activity in the non-oil sector
rose from 54.3 in June to 55.7 in July, the highest reading in three months. A ranking above
50 indicates economic growth, while a reading below 50 indicates a contraction.
Despite the recent improvement in Saudi’s EDF, the International Monetary Fund (IMF) on
July 24 lowered its economic growth measure for Saudi Arabia to just 0.1%, down 0.3% on
its April projections. The kingdom’s overall economic growth is forecast to rebound to 1.1%
in 2018, which is also down 0.2% on April’s projections. IMF’s report underlined that “the
recent decline in oil prices, if sustained, could weigh further on the outlook for the region’s
oil exporters.” As part of its continued efforts to boost the economy, Saudi Arabia unveiled
a new tourism project, which plans to utilize the region’s resources to develop world class
leisure and entertainment facilities. Upon completion, the project is expected to create
35,000 jobs and to add $4 billion to the economy per year.
Moody’s Analytics markets and distributes all Moody’s Capital Markets Research, Inc. materials. Moody’s Capital Markets
Research,Inc. is a subsidiary of Moody’s Corporation. Moody’s Analytics does not provide investment advisory services or
products. For further detail, please see the last page.
MOODY'S ANALYTICSSOVEREIGN AND SUPRANATIONAL
Exhibit 1
Saudi Arabia’s Five-Year Sovereign EDF Measure (%) vs Crude Oil Prices ($ per barrel)
Source: CreditEdge, Bloomberg
27 August 2017Sovereign Risk Report: Non-Oil Sector Growth Curbs Saudi Arabia’s Credit Risk
MOODY'S ANALYTICSSOVEREIGN AND SUPRANATIONAL
Exhibit 2
37 August 2017Sovereign Risk Report: Non-Oil Sector Growth Curbs Saudi Arabia’s Credit Risk
MOODY'S ANALYTICSSOVEREIGN AND SUPRANATIONAL
47 August 2017Sovereign Risk Report: Non-Oil Sector Growth Curbs Saudi Arabia’s Credit Risk
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