The glut in the oil pool has resulted in Moody’s re-assigning debt ratings for countries in the Arabian Gulf.
Assigning a negative outlook to Oman, Saudi Arabia and Bahrain, Moody’s Investors Service has cut their debt ratings as low oil prices have continued to torment and undermine government finances in the region.
Although Moody’s has downgraded Saudi Arabia’s long term rating to A1, it has however assigned a stable outlook for the oil kingdom, eyeing sweeping economic reforms announced by Saudi government last month.
Earlier in April this year, Deputy Crown Prince Mohammed bin Salman laid out the Kingdom’s biggest ever policy shake-up in decades, which includes among others, a bigger role for the private sector, an increase in taxes as well as an efficiency drive.
“The government has ambitious and comprehensive plans to diversify both the economy and its balance sheet which, if even partly successful, should stabilize its credit profile and which could, if achieved, offer a route back to a higher rating level over time,” said Moody’s.
While applauding the move, the rating agency said it is unclear as to how Saudi Arabia will fund this massive upgradation program for the period of 2016 and 2020, which would effectively require $324 billion.
“It is not yet clear how this cumulative financing need will be met: while Saudi Arabia’s low levels of government debt at 5.8 percent of GDP in 2015 provide fiscal space, no medium-term funding strategy has yet been announced,” said Moody’s.
As for Bahrain and Oman, Moody’s has given them both the same treatment as that of Saudi Arabia: it has downgraded them by a notch to Baa1 for Oman and Ba2 for Bahrain and has assigned a stable outlook for both. However, both countries lack the oil reserves and the financial strength of their wealthy neighbour – Saudi Arabia.
Although Bahrain can expect a helping hand from Saudi Arabia to help it surmount its financial crunch, it is likely that it will be hard for it to borrow money from international markets, especially when it will have to compete for it with its neighbour, as per Moody’s.
“The further deterioration in the government’s balance sheet, combined with increased external debt issuance from other countries in the region, will lower the supply of external funding, thereby heightening the risk that finance is obtainable only at much less affordable rates for Bahrain, or potentially reduced amounts.”
As for the United Arab Emirates, Moody’s has confirmed its Aa2 rating for it as well as Abu Dhabi, with the exception of Abu Dhabi getting a negative outlook.
With the glut in the global oil pool, the UAE has been more proactive than its neighbours, but Moody’s found a lack of clarity in its policies vis-à-vis its budget deficit, thus the downgrade in its rating.
As for Kuwait and Qatar, both have received a rating cut to Aa2 and have been assigned a negative outlook by the rating agency.
Categories: Economy & Finance, Strategy
manageria.biz 
Leave a comment