SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 9 NOVEMBER 2015ANALYST CONTACTSIrina Baron Asst Dir-Research Associate irina.baron@moodys.comXian Li Senior Research Analyst xian.li@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research, Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products. For further detail, please see the last page.Sovereign Risk ReportLow Oil Prices and Large Fiscal Deficit Raise Saudi Arabias Credit Risk Market price based measures of credit risk for Saudi Arabia almost doubled over the past month, rising to their highest levels since 2009, as the Arab worlds biggest economy has been roiled by the plunge in oil prices. Saudi Arabia, which relies on energy exports for more than 80% of its revenue, saw its five-year Sovereign EDF' (Expected Default Frequency) 1 , 2metric, which measures the expected probability of default over a five-year time horizon, increase from 0.31% on October 6 to 0.52% as of November 6 (Figure 1). The change in the countrys Sovereign EDF measure makes it one of the largest movers among the 70 sovereign entities that we track. Another repercussion of falling commodity prices is tightening liquidity. Saudi Arabias key interest rate, the three-month Saudi Interbank Offered Rate, also shown in Figure 1 below, rose to 1% over the past week, its highest level in six years.Figure 1: Saudi Arabias Five-Year Sovereign EDF Measure vs 3-month Saudi Interbank Offered RateLower oil and commodity prices have taken a toll on the countrys economy, as the oil and gas sector accounts for around 50% of the countrys GDP. Saudi Arabias economic growth has slowed from a peak of 10% in 2011 to 3.8% in the second quarter of 2015. Despite positive growth, the Emirates NBD Purchasing Managers Index (PMI) dropped for the secondMOODY'S ANALYTICS SOVEREIGN AND SUPRANATIONAL2 9 NOVEMBER 2015 SOVEREIGN RISK REPORT : LOW OIL PRICES AND LARGE FISCAL DEFICIT RAISE SAUDI ARABIAS CREDIT RISKconsecutive month...
