Saudi Arabia’s National Commercial Bank said the debt burden of the United States has reached the same ratio of Italy, deemed a default risk. In a report, the Jedda-based bank warned that the downgrade of the U.S. credit rating from triple A status would reduce energy demand and prices, a move expected to harm the Saudi kingdom.
“Foreign central banks maintain a large share of their foreign currencyreserv es in U.S. treasuries because it is the deepest and most liquid bond market,” the report said. “But, international funds that limit their investments to AAA-rated bonds may dump the U.S. holdings, causing the U.S. dollar to depreciate. Yet, mutual fund investment guidelines do retain some flexibility regarding the handling of such matters.”
The report, titled “The Standard and Poor’s Downgrade of U.S. and Its Implications on the Saudi Economy,” however, said the Gulf Cooperation Council state could withstand the decline of the U.S. dollar. NCB said Saudi Arabia wielded a large reserve to ensure government programs over the next few years.
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