US rating company downgrades Saudi Arabia's outlook to 'negative', citing coronavirus oil crash

In its Friday's report, the American rating agency also projected an increase in Saudi Arabia's government debt in the medium term.

Moody's said Saudi Arabia's negative outlook reflected increased fiscal risks stemming from the drop in global oil demands due to the coronavirus pandemic.

The report also cited uncertainty in the kingdom's ability to offset oil revenue losses and stabilize debt burden.

The impact of the coronavirus outbreak on the global oil demand could see global oil and gas exploration and production companies lose a whopping $1 trillion this year in revenues.

"The oil price environment now and potentially over the next few years marks a significant change from Moody's previous assumptions and creates downside risks for Saudi Arabia's already eroding fiscal strength due to the sovereign's still heavy reliance on oil revenues," Moody’s analysts wrote.

Taking into account Saudi Arabia's commitment to cut oil production and using new oil price assumptions - $35 per barrel in 2020 and $45 in 2021 - the rating agency said that relative to last year, it expects the kingdom's revenues will drop by about 33 percent in 2020 and nearly 25 percent in 2021.

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While Moody’s expects Saudi Arabia to make further expenditure cuts to compensate for oil revenue loss throughout the two years, the measures will not be able to contain fiscal deficit, the report said.

"Despite these offsetting measures, Moody's projects that the fiscal deficit will widen to more than 12% of GDP in 2020 and more than 8% in GDP in 2021 from 4.5% of GDP in 2019," analysts wrote, predicting further increase in government debt.

"The plans to diversify Saudi Arabia’s economy away from oil could lift the country’s medium- to long-term growth potential," Moody’s said.

Read more: Arab countries brace for massive economic shocks following oil price crash

However, the agency's sovereign credit rating for Saudi Arabia remained at "A1," as analysts cited the Saudi government's "still relatively robust, albeit deteriorating" balance sheet, moderate debt level and substantial fiscal and external liquidity buffers.

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