Oil prices making an impact
On Friday, S&P downgraded credit rating and citing a pronounced negative swing in the fiscal balance sheet. Today, Moody's said that the Saudi government has cut back on expenditures, and that without such budget cuts and/or non-oil revenue increases, the Kingdom's creditworthiness will be affected. The rating agency added that volatile oil prices continue to when the government's balance sheet and that they see a deficit of 17% of GDP.
In 2013, there was a large surplus of 7% of GDP but with oil prices quickly retreating, that surplus is being eroded quickly.
The IMF warned recently that the oil rich countries of the middle east will run out of cash in 5 years or less will save from $50 a barrel. Saudi Arabia derives 80% of revenue from oil.
To combat a shortfall of cash, S&P believes that Saudi Arabia will need to rely on more debt and draw down it's stockpile of cash from it's sovereign wealth fund. This could have a knock on effect of lowering demand for other assets around the world.
Money is not growing on the oil well trees anymore. Time to tighten the belts....
