The sharp drop in oil prices at the end of last year is likely to weaken economic profiles for the GCC in 2015, according to Standard and Poor’s.
The rating agency’s latest Middle East and North Africa (MENA) report says the region’s overall creditworthiness has dropped since last summer. However, of the 12 MENA sovereigns that S&P rates, it has only lowered the ratings on Bahrain and Oman since oil prices plummeted more than 50 percent since June 2014.
Still, GCC sovereigns’ economies depend on hydrocarbon revenues and are therefore vulnerable to a sharp and sustained decline in oil prices, without substantial offsetting buffers, the report said.
Nine of the 12 MENA sovereigns S&P rates were ranked investment grade (BBB or above), but Egypt, Jordan, Lebanon – all hydrocarbon importers – were speculative grade. The average Mena sovereign rating is BBB+.
“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.
Standard and Poor’s downgraded Saudi Arabia’s rating from positive to stable on 5 December I view of the further decline in oil prices, the report said.
“Due to Saudi Arabia's high dependence on the commodity we think that the sovereign's very strong fiscal position could weaken.”
In related news, a private Qatari investment bank has warned that investment in the state has slowed as the oil price slumps.
Qatar’s Investment House said regulators have shelved its proposal for a QR750 million ($206 million) flotation of an agricultural firm intended to meet demand for chicken consumption in Qatar.
“Qatar consumes about 89 million kilo of chicken a year and only produces 6 million kg - the rest is imported, so having this kind of project here is a huge step towards food security,” the company’s chief executive Hashem Al Aqeel told Trade Arabia Investment House is a private Qatari investment bank that is 87 per cent owned by Qatar Investment and Projects Development Holding Co (Qipco), a local investment group.