Fitch Ratings downgraded Saudi Arabia’s creditworthiness on Tuesday, saying a decline in oil prices will continue to have “major negative implications” for the kingdom despite its efforts at economic diversification.

Fitch reduced Saudi Arabia’s long-term foreign and local currency ratings to “AA-,” the fourth-highest investment grade, from “AA” while retaining a negative outlook. The downgrade follows similar moves by Standard & Poor’s and Moody’s Investors Service.

Kaaba Mecca

“The downward revision of our oil price assumptions for 2016 and 2017 to [$35 and $45 a barrel], respectively, has major negative implications for Saudi Arabia’s fiscal and external balances,” the rating agency said in a news release.

As The Wall Street Journal reported, the country’s “government deficit expanded to 14.8% of its gross domestic product in 2015 from 2.3% in 2014 as oil revenues, its chief source of income, dwindled. The preceding years, Saudi Arabia had posted a surplus.”

Fitch noted that the “pace of fiscal consolidation [by Saudi Arabia] has increased” and further reforms are to be introduced as part of a National Transformation Program that would boost non-oil revenues and streamline spending.

But even if fully implemented, “the measures will not prevent a substantial erosion of fiscal and external buffers during 2016 and 2017,” Fitch said.

Fitch also believes Saudi Arabia’s geopolitical risks are high relative to “AA”-rated peers. “Tensions have risen between Saudi Arabia and its long-standing regional rival Iran, and are expected to persist, although a direct confrontation is highly unlikely,” it said. “Saudi Arabia’s military intervention in Yemen and in Syria shows a greater assertiveness in foreign policy.”

According to the International Monetary Fund, Saudi Arabia’s economy grew by 3.4% last year. On Tuesday, the IMF maintained its forecast of 1.2% growth for the kingdom this year and 1.9% in 2017.

“We expect oil output to stabilize and non-oil GDP to be hit by fiscal consolidation measures and weaker confidence,” Fitch said.

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