Moody’s cuts out­looks for four Gulf States

The Pak Banker - - COMPANIES/BOSS -

Moody's In­vestors Ser­vice has cut its out­look for the debt rat­ings of Saudi Ara­bia and three other Gulf states while low­er­ing Bahrain's rat­ing to junk, cit­ing con­cern over the im­pact of low oil prices on their fi­nances.

Saudi Ara­bia's Aa3 rat­ing was placed on re­view for a pos­si­ble down­grade, Moody's said late on Fri­day, adding that it would study whether Riyadh's ef­forts to ex­pand its non-oil rev­enues and di­ver­sify its econ­omy were likely to work.

"At around $650 bil­lion (or roughly 95 per­cent of fore­cast 2016 gross do­mes­tic prod­uct) at the end of Septem­ber 2015, the coun­try's for­eign cur­rency as­sets are large," it said.

"But po­ten­tial calls on th­ese funds are grow­ing - em­a­nat­ing from the need to fi­nance fu­ture cur­rent ac­count and bud­get deficits, and from use in small-scale cur­rency in­ter­ven­tions to de­fend the cur­rency peg amid ris­ing spec­u­la­tion."

Moody's also put the United Arab Emi­rates, Kuwait and Qatar on re­view for down­grades - coun­tries which are widely seen in the debt mar­kets as more able to cope with an era of low oil prices be­cause of their huge fi­nan­cial re­serves rel­a­tive to small pop­u­la­tions.

It ac­knowl­edged that the UAE planned tax re­forms and that its econ­omy was more di­ver­si­fied than most in the re­gion, but added: "The struc­tural shock to the oil mar­ket is weak­en­ing the UAE's govern­ment bal­ance sheet and its econ­omy, and there­fore its credit pro­file."

Moody's cut Bahrain's rat­ing by one notch to Ba1, below in­vest­ment grade. It kept the rat­ing on re­view for a fur­ther down­grade; Bahrain has much smaller re­serves of money and oil than its wealthy neigh­bours.

Cen­tral to the agency's anal­y­sis was its view of oil prices. It said it had re­cently cut its fore­casts for Brent crude to $33 per bar­rel in 2016 and $38 in 2017, ris­ing slowly to US$48 by 2019. In De­cem­ber, it had pre­dicted Brent at $43 in 2016.

Late last month, Moody's cut the rat­ing of Oman, the other mem­ber of the Gulf's six wealthy oil ex­porters, by two notches to A3 and kept the rat­ing on re­view for a fur­ther down­grade.

Moody's ac­tions fol­lowed a mass down­grade of oil pro­duc­ers by Stan­dard & Poor's in mid-Fe­bru­ary. S&P cut coun­tries in­clud­ing Saudi Ara­bia, Bahrain and Oman. Saudi Ara­bia was cut by two notches to A-mi­nus, three notches below Moody's rat­ing, while Bahrain was low­ered to junk.

More­over, Con­tin­ued low oil prices could have an in­creas­ingly neg­a­tive im­pact on banks across the Gulf Co­op­er­a­tion Coun­cil (GCC), ac­cord­ing to Moody's In­vestors Ser­vice.

Its new re­port said that this could oc­cur both di­rectly - by a weak­en­ing in gov­ern­ments' ca­pac­ity and will­ing­ness to sup­port do­mes­tic banks - and in­di­rectly, through a weak­en­ing of banks' op­er­at­ing con­di­tions.

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