By Mohammed Abu Meleeh

Riyadh-Mubasher: Fitch Ratings has affirmed Saudi Arabia's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'AA', with Stable Outlook.

The Kingdom's ceiling has been affirmed at 'AA+' and the Short-term foreign currency IDR at 'F1+'.

Saudi Arabia's substantial external and fiscal buffers are a key support for the ratings in an environment of lower oil prices.

Sovereign net foreign assets have declined since reaching an all-time high of around 114% of GDP at end-August. They are expected to be drawn down over 2015 and 2016.

Nonetheless, Fitch expects sovereign net foreign assets to be above 100% of GDP at the end of 2016.

Government deposits are also forecast to decline and debt is expected to rise, but at a forecast 37.7% of GDP at the end of 2016, the net creditor position is still projected to be the fourth-largest of all Fitch-rated sovereigns.

Lower oil prices combined with a spending package announced by the new King (costing 4.3% of forecast 2015 GDP and led by a two-month salary bonus for government employees) will push the general government deficit into double digits in 2015.

This follows a deficit of 1.9% of GDP in 2014, when overspending, particularly on key projects and foreign assistance, lifted the fiscal breakeven oil price to an estimated $102/b ($63/b excluding capital spending).

Fitch assumes curtailed overspending, lower capital spending and the absence of one-off payments and higher oil prices will lower the deficit to a forecast 3.7% of GDP in 2016. Transparency on fiscal policy and outturns is a weakness relative to rating peers.

The authorities are considering debt issuance in addition to drawing down sovereign net foreign assets to finance the deficit.

Fitch forecasts consolidated general government debt at 6.4% of GDP at 2016-end, up from 1.5% of GDP at 2014-end.

General government deposits are primarily assets of the pension funds and are unlikely to be used for direct deficit financing, though they are being drawn down to finance some multi-year projects.

Lower oil prices are forecast to pull the current account surplus down to just 0.3% of GDP in 2015, the lowest since 1999.