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Mena sovereign ratings on the decline

Declining oil prices are adversely affecting
the fiscal profiles of the countries in the region.
Image: Reuters

Mena sovereign ratings on the decline

DUBAI, 4 days ago

The sharp drop in oil prices since mid-2014 is likely to lead to weakening economic, external and fiscal profiles for the region, particularly for the GCC, said a new analysis released by Standard & Poor’s.

However, of the 12 Mena sovereigns rated, only the ratings on Bahrain and Oman have been decreased since July, added the Mena Sovereign Rating Trends 2015 from S&P’s Ratings Services.

“In our view, the net hydrocarbon importers–Egypt, Morocco, Jordan, and Lebanon–could see some modest improvement in macroeconomic indicators as a result of the fall in the oil price–but we do not believe this will be significant enough to lead to positive rating actions,” the report said.

“We rate nine of the 12 Mena sovereigns in the ‘BBB’ rating category or above. The average Mena sovereign rating is ‘BBB+’. When weighted by GDP, however, the average moves closer to ‘A’ because we rate the larger economies–measured by nominal GDP–higher than the smaller economies.

“These averages mask a clear difference between those sovereigns with a significant hydrocarbon endowment and those without. The average rating for the hydrocarbon-endowed sovereigns of Abu Dhabi, Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia, is currently close to ‘A+’, while for those without hydrocarbon resources it is closer to ‘BB+’.

“The two groups diverged further following the regional social and political unrest that flared up in December 2010, the so-called Arab Spring. Our recent rating actions on Bahrain and Oman, coupled with the upgrade of Egypt to ‘B-‘ from ‘CCC+’ in November 2013 and the revision of the rating outlooks on Jordan, Lebanon, Morocco, and Ras Al Khaimah, have somewhat reversed the trend,” Standard & Poor’s said in the report.

“Of the 12 Mena sovereigns we rate, 10 currently have a stable outlook despite the still-challenging political and economic backdrop. Our rating outlooks are intended to indicate our view of the potential direction of a long-term credit rating, typically over six months to two years for investment-grade ratings and six months to one year for speculative-grade ratings,” the report said.

“A positive or negative outlook is intended to designate at least a one-in-three likelihood of a rating change in the indicated direction.

“We revised the outlook on Saudi Arabia to stable from positive on Dec. 5, 2014. This reflected our view that Saudi Arabia’s per capita GDP will not increase enough for us to improve our assessment of its economic prospects, as defined in our criteria, and given our downward adjustments to our medium-term oil price projections.

“We revised the outlook on Saudi Arabia to negative from positive on Feb. 9, 2015, in view of the further decline in oil prices. Due to Saudi Arabia’s high dependence on the commodity we think that the sovereign’s very strong fiscal position could weaken.

“Since our last regional publication in July 2014, we also revised the outlooks on Jordan and Ras Al Khaimah to stable from negative. We revised our outlook to stable on Jordan on its strengthening fiscal and external balances, and on Ras Al Khaimah on its improved government support structures.

“We view most Mena sovereigns’ external, budget, and debt assessments as strengths. This largely reflects the significant foreign currency inflows into government revenues and current account receipts of the hydrocarbon-endowed economies in the GCC.

“We also consider the GCC economies to have strong or exceptionally strong government asset and net external creditor positions. However, rating constraints common to all Mena sovereigns, under our criteria, are their institutional and monetary assessments. There is no rated Mena sovereign for which we view these factors as strengths,” Standard & Poor’s highlighted in the report. – TradeArabia News Service

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