Fitch Ratings downgraded Saudi Arabia's credit rating by one notch from A + to A, which means the cost of borrowing on the kingdom from international markets has increased.
The cut is a blow to the largest Arab economy as Saudi Arabia prepares for a possible international issuance of dollar-denominated Islamic bonds.
The report attributed the reason for the downgrade to the escalation of geopolitical and military tensions in the Gulf region and the deterioration of the Kingdom's financial position.
In its report, Fitch did not rule out further attacks on Saudi Arabia, which could result in economic damage.
"In our view, Saudi Arabia is vulnerable to mounting geopolitical tensions due to its prominent position in foreign policy, including its association with US policy on Iran and its continued involvement in the Yemen war," the agency said.
This comes despite the resumption of full oil production at the end of September this month following the attack by drones on the oil facilities in Abqaiq and Khurais on the fourteenth of this month.
In an interview broadcast on Sunday on CBS, Saudi Crown Prince Mohammed bin Salman said the war with Iran would destroy the world economy and favored a non-military solution to tension with it.
"Oil supplies will be disrupted and oil prices will rise to fictional highs we have never seen in our lives."
|Saudi Arabia calls on Fitch to reconsider its decision to downgrade the kingdom's credit rating (Reuters)|
In response to the Fitch report, the Saudi finance ministry expressed reservations and called on the agency to reconsider.
The ministry said that the province of Saudi Arabia and major Saudi companies at advanced levels in the global rankings demonstrate the effectiveness of the measures taken by the country to promote economic growth.
The report does not reflect the implications of Saudi Arabia's rapid response in dealing with the aftermath of the attack on the two oil facilities.
Fitch forecast a fiscal deficit of 6.7% of GDP this year due to fiscal policy and falling oil prices, compared with a deficit of 5.9% last year.
The agency expected oil prices to fall to an average of $ 65 a barrel this year, and to $ 62.5 next year.
Fitch cautioned that the expected drop represents a headwind for the fiscal balance program through which the Saudi government aims to achieve fiscal balance in 2023.
Riyadh has posted a fiscal deficit in recent fiscal years of more than $ 300 billion, according to government figures, and the Saudi government expects a deficit of about $ 34 billion in the 2019 budget.
Although Fitch downgraded Saudi Arabia, it is one notch higher than Saudi Arabia's S&P credit rating.
In an interview with Al Jazeera, oil and energy expert Amer Al-Shobaki said that the Saudi credit rating downgrade would weaken its ability to borrow from abroad and make it less reliable towards banks and lenders globally compared to the previous period.
He added that the door is still open for further reductions in the event of strikes or military expansion in the region.
Saudi companies and banks would be hurt by a downgrade of the kingdom's credit rating if it requested loans from international banks and institutions, Shobaki said.
Meanwhile, Saudi Arabia's economy grew 0.5% in the second quarter from a year earlier on oil production cuts, government data showed on Monday.
Government data showed that the GDP of the oil sector fell 3.02% in the second quarter, while the non-oil sector grew 2.94%.
A few days ago, S&P predicted the kingdom's real GDP would shrink by about 0.4 percent this year, driven mainly by lower oil production due to the OPEC deal and attacks.
Standard & Poor's has confirmed its long-term and short-term sovereign debt rating of "A / A-" (-A- / AA).
By the end of 2019, the kingdom plans to reach its existing debt to about $ 181 billion, equivalent to 21.7% of GDP.