US-based Fitch Ratings has revised its outlook for Saudi Arabia from stable to negative, but has affirmed the kingdom’s AA rating.

Fitch based the negative outlook on lower oil prices, which have reached new lows of less than $45 a barrel.

It also highlighted the increased spending associated with the succession of the new king.

These factors will lead to a projected general government deficit of 14.4 per cent of GDP in 2015, despite a reduction in capital spending. On the current trajectory, Fitch also expects double-digit deficits in 2016 and 2017, although these will be less than 10 per cent if spending is reduced and oil prices begin to recover.

Financing the deficit, which is currently being addressed through drawing down on central bank reserves and issuing SR35bn ($9.3bn) in bonds, will gradually erode Saudi Arabia’s strong financial buffers. The kingdom has already drawn down its foreign reserves by $72.5bn, or 10.2 per cent of the total, between mid-2014 and mid-2015, according to Saudi Arabian Monetary Agency (Sama).

Saudi Arabia is expected to issue bonds every month in 2015, and on a regular basis over the next few years.

Fitch forecasts that the kingdom’s net creditor position will erode from 54.2 per cent of GDP at the end of 2014 to 36.4 per cent by the end of 2017.

While a global comparison puts Saudi Arabia in a very strong position, other GCC countries such as Kuwait and Qatar are in a much better position to ride out lower oil prices. Fitch predicts Saudi Arabia will have net foreign assets worth 84 per cent of GDP at the end of 2017, versus average net-foreign assets for other AA-rated GCC countries of 191 per cent of GDP.

Slowing GDP growth is also a concern. Non-oil growth slowed to 3.3 per cent in the first quarter of 2015, down from an average of 7.2 per cent between 2009 and 2014. Lower spending could further suppress growth, although higher oil production will mean the kingdom should maintain overall growth in 2015. Fitch projects 4 per cent annual GDP growth, higher than the Washington-based IMF’s forecast of 3 per cent.

Saudi Arabia also has higher geopolitical risk factors than its neighbours, due to ongoing conflicts in Iraq and Yemen, and its involvement in them. It is also a driver for increased defence spending, putting an extra strain on the budget.

US-based Standard & Poor’s changed its Saudi Arabia rating to negative in February, while US-based Moody’s Investors Service has yet to change the outlook.