Diplomatic rift ‘credit negative’ for all GCC – Moody’s

Diplomatic rift ‘credit negative’ for all GCC – Moody’s
Negative foreign investor sentiment has weighed down on Qatar's financing costs

Mubasher: Moody’s Investors Service on Wednesday said that the diplomatic disagreement that took place between Qatar and a number of GCC and Arab countries is “credit negative for all GCC countries, with Qatar and Bahrain being most exposed.”

Nearly three months ago, a diplomatic dispute occurred between Qatar and its neighbouring GCC member states alongside several other Arab countries including Egypt. The spat resulted in the severing of land and sea ties between these countries and Qatar, impacting the latter’s imports and exports.

"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 and senior credit officer.

"While we expect the GCC to overcome its divisions, tensions persisting -- or even escalating -- would be the most credit negative for Qatar and Bahrain," he added in Moody’s newest report.

Since the dispute, Qatar has faced several economic, financial, and social challenges, particularly after the spat resulted in the severing of travel ties added to restrictions on trade.

“Qatar's future credit trajectory will depend heavily on the evolution of the dispute,” Moody’s highlighted.

Qatar’s trade, tourism, and banking sectors were the most impacted since the spat, the ratings agency said, noting that in June and July alone around $30 billion of capital outflows from Qatar’s banking sector.

Since the start of the dispute, the Qatar Central Bank (QCB) has been supporting local banks and Moody's estimates that Qatar has used around $38.5 billion, representing 23% of gross domestic product (GDP) to support the economy.

Negative foreign investor sentiment has weighed down on Qatar's financing costs and led to capital outflows, Moody's said, highlighting that it “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,” Moody’s added.

The investors' service agency further highlighted that Bahrain was the “most exposed” to the regional tension, particularly after a rise in debt, increased issuances from other GCC states, added to higher US interest rates have pressured Bahrain’s financing costs since 2014.

“The broad-based deterioration of Bahrain's credit profile and its diminished shock absorption capacity makes it susceptible to any reassessment of risk by foreign investors. The country's strong alliance with Saudi Arabia and [the UAE], which have provided support in the past, mitigates this risk to some extent. However, the form and timeliness of such support lacks clarity,” Moody’s stressed.

Source: Mubasher