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S&P Downgrades Saudi Arabia

S&P Downgrades Saudi ArabiaS&P Downgrades Saudi Arabia

Standard and Poor’s lowered its long-term credit rating for Saudi Arabia one notch to A+ after the country’s deficit rose sharply because of low oil prices.

The ratings agency maintained its negative outlook on Saudi Arabia, a key member of OPEC, saying in a statement that the decision reflected the challenges of reversing the “marked deterioration” in the Saudi fiscal balance, AFP reported.

S&P said it could further lower the ratings within the next two years if Riyadh fails to achieve a “sizable and sustained reduction in the general government deficit”.

It said Saudi Arabia, one of the world’s leading oil producers, had seen its deficit climb to 16% of GDP in 2015 compared with 1.5% in 2014, because of the plunge in the price of crude oil, Riyadh’s main source of revenues.

It said the government could cut back on key investments and cut subsidies on power, water and fuel that could strengthen government finances in the coming years.

S&P had put the Persian Gulf Arab state on negative outlook in February, warning its dependence on oil threatened its fiscal position.

Between June 2014 and September this year the price of a barrel of oil has tumbled from $90 to less than $50.

But it also made reference to political risk, saying that “intrafamily issues around succession could make the country’s policy decisions more challenging and difficult to predict.”

 Internal Power Struggle

Eight of the 12 surviving sons of Saudi Arabia’s founding monarch are supporting a move to oust King Salman, 79, the country’s ailing ruler, and replace him with his 73-year-old brother, according to a dissident prince, Independent.com reported recently.

The prince also claims that a clear majority of the country’s powerful Islamic clerics, known as the ulama, would back a palace coup to oust the current king and install Prince Ahmed bin Abdulaziz, a former interior minister, in his place. “The ulama and religious people prefer Prince Ahmed–not all of them, but 75%,” said the prince, himself a grandson of King ibn Saud, who founded the ruling dynasty in 1932.

Support from the clerics would be vital for any change of monarch, since in the Saudi system only they have the power to confer religious and therefore political legitimacy on the leadership.

The revelation suggests there is increasing pressure within the normally secretive Saudi royal family to bring to a head the internal power struggle that has erupted since King Salman inherited the throne at the beginning of this year. The prince, who cannot be named for security reasons, is the author of two recently published letters calling for the royal family to replace the current Saudi leadership.

Financialtribune.com