SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 24 October 2016ContactsIrina Baron Asst Dir-Research Associate irina.baron@moodys.comXian Li 212-553-1404Senior 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 ReportRecord Bond Sale Curbs Saudi Arabias Credit Risk Market price-based measures of credit risk for Saudi Arabia, one of the worlds largest oil producers, rose in January to their worst levels since 2009, as the countrys economy was roiled by the plunge in oil prices. Since then crude oil prices have rebounded significantly, holding above $50 for most of October. Concurrently, Saudi Arabia, which relies on energy exports for more than 80% of its revenue, saw its five-year Sovereign EDFTM (Expected Default Frequency)1 metric, which measures the expected probability of default over a five-year time horizon, improve from 0.69% on January 18 to its current level of 0.38% (Exhibit 1). Furthermore, the easing in the countrys sovereign credit risk sentiment over the past week was the largest among the 70 sovereign entities that we track. This decline was fueled by the kingdoms $17.5 billion bond sale, the biggest ever from an emerging-market nation. This bond offering is one of the measures that the country took to address its budget deficit, which soared to a record $98 billion in 2015, about 15% of its GDP. Earlier this year, the government took measures to cut spending and boost non-oil revenues by reducing subsidies on fuel products, electricity, water, and other services. Nonetheless, the International Monetary Fund (IMF) on October 18 revised its projection for non-oil sector growth in Saudi Arabia from 1.6% in May to 0.3%. The kingdoms overall GDP is expected to grow 1.2% in 2016. The report underlined that Saudi Arabia has to make more of an adjustment to be able to balance their budget i...
