Gulf spat is credit neg­a­tive for all GCC mem­bers: Moody’s

Oman and Kuwait could ben­e­fit marginally from di­ver­sion of trade

Muscat Daily - - FRONT PAGE -

The diplo­matic dis­pute in the Gulf is credit neg­a­tive for all GCC coun­tries, with Qatar and Bahrain be­ing most ex­posed

The diplo­matic dis­pute be­tween Qatar and a group of neigh­bour­ing coun­tries, in­clud­ing mem­bers of the GCC, is credit neg­a­tive for all GCC coun­tries, with Qatar and Bahrain be­ing most ex­posed, Moody’s In­vestors Ser­vice said in a re­port on Wed­nes­day.

“The sever­ity of the diplo­matic dis­pute be­tween Gulf coun­tries is un­prece­dented, which mag­ni­fies the un­cer­tainty over the ul­ti­mate eco­nomic, fis­cal and so­cial im­pact on the GCC as a whole,” said St­ef­fen Dyck, Moody’s vice pres­i­dent - se­nior credit of­fi­cer and co-au­thor of the re­port. “While we ex­pect the GCC to over­come its di­vi­sions, ten­sions per­sist­ing - or even es­ca­lat­ing - would be the most credit neg­a­tive for Qatar and Bahrain.”

More than three months since the diplo­matic row be­gan, Qatar faces large eco­nomic, fi­nan­cial and so­cial costs stem­ming from re­lated travel and trade re­stric­tions, Moody’s said adding that Qatar’s fu­ture credit tra­jec­tory will de­pend heav­ily on the evo­lu­tion of the dis­pute.

It said the im­pact to-date has been most acute for the trade, tourism and banking sec­tors. ‘Siz­able cap­i­tal out­flows in the vicin­ity of US$30bn flowed out of Qatar’s banking sys­tem in June and July, with fur­ther de­clines ex­pected as GCC banks opt not to roll over their de­posits’.

Qatar Cen­tral Bank has been sup­port­ing bank fund­ing: Moody’s es­ti­mates Qatar used US$38.5bn to sup­port the econ­omy in the two first months of the sanc­tions.

Although neg­a­tive for­eign in­vestor sen­ti­ment has also in­creased Qatar’s fi­nanc­ing costs and led to cap­i­tal out­flows, Moody’s does not ex­pect Qatar to raise funds in the in­ter­na­tional cap­i­tal mar­kets this year. ‘This should cush­ion Qatar against higher fund­ing costs for the time be­ing’. Among Qatar’s GCC crit­ics, Moody’s said Bahrain is most ex­posed to an es­ca­la­tion of re­gional ten­sion. Ris­ing debt, in­creased is­suance from other GCC sov­er­eigns, and ris­ing US in­ter­est rates have put pres­sure on Bahrain’s fi­nanc­ing costs since 2014.

To some ex­tent, GCC coun­tries such as Oman and Kuwait could ac­tu­ally ben­e­fit marginally from the di­ver­sion of trade along other GCC routes, Moody’s said.

‘Freight traf­fic has suf­fered sig­nif­i­cant dis­rup­tion as a re­sult of the re­stric­tions levied on Qatar. Although of­fi­cial data have yet to be re­leased, cargo through­put via Dubai port is re­ported to have suf­fered as Qatari im­porters re-route cargo through neigh­bour­ing ports in Oman. Cargo vol­umes in So­har have in­creased by around a third in the months fol­low­ing the dis­pute’.

Moody’s said in­ter­na­tional freight com­pa­nies have im­ple­mented con­tin­gency plans to reroute traf­fic through neu­tral coun­tries: Maersk an­nounced in June that it would re­di­rect ma­rine traf­fic des­tined for Qatar via Oman, run­ning a feeder ser­vice from Salalah.

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