US rating agency Fitch has upgraded Saudi Arabia’s long-term foreign and local currency issuer default ratings to AA from AA- with a stable outlook.

The upgrade was driven by the country’s strengthening sovereign and external balance sheets. Government deposits in the banking sector rose to 58.7 per cent of GDP at the end of 2013, compared to general government debt of just 0.6 per cent of GDP. Saudi Arabia does not have sovereign external debt.

Saudi Arabia’s banking sector has also strengthened, with non-performing loans falling to 1.4 per cent at the end of 2013.

Fitch also recognised efforts by the Saudi government to reform the labour market to reduce the volume of illegal workers and increase the participation of nationals in the labour force.

However, unemployment remains high at 11.5 per cent.

Saudi Arabia’s real GDP slowed to 3.8 per cent in 2013, due to lower oil production. Non-oil growth was strong at 5 per cent and continued government spending and higher employment of nationals should keep it at that level.

Despite the fast pace of growth in the non-oil sector, the economy is still heavily dependent on oil, which accounts for 90 per cent of fiscal revenues and 80 per cent of current account revenues.

Fitch says it would take a “prolonged period” of low oil prices to undermine the country’s fiscal position, despite the oil breakeven price continuing to rise.