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GCC credit ratings fall short

Regional geo-political volatility and the quality of major institutions are holding back the sovereign ratings of wealthy GCC countries according to regional sovereign ratings expert, Tristan Cooper. This is despite economic indicators that out-perform some Aaa rated countries.

Speaking to reporters at a briefing Cooper, vice president and senior analyst at Moodys Sovereign Risk Unit, identified three factors affecting GCC country's ratings: regional geopolitical risk, the quality of institutions and a continuing reliance on hydrocarbons.
Talking to Arabian Business after the briefing on the most important of these factors, Cooper commented, "it is a mixture of regional geo-politics and institutional issues within the countries themselves." He added, "part of that is obviously the provision of data as well. The macro-economic data we get here tends to be of a poorer standard than we would expect from a Aaa rated county." These are "long-term issues," according to Cooper, and are not expected to change over the next 12 to 18 months.

The ratings awarded by Moodys to GCC states have improved dramatically over the last four years, but none of the countries have yet achieved Aaa rating. This is despite the fact that their underlying economic indicators in some cases outstrip those in countries awarded Aaa ratings, the highest issued by Moodys. Between 2004 to 2007 both Qatar and Saudi Arabia have seen their ratings leap a massive four points to Aa2 and A1+ respectively. These place them in strong investment grade positions.

According to Cooper, the positive rating trajectories of these and other Gulf states is driven by the enormous oil revenue they enjoy. As a result the value of net government assets has rocketed, boosting fiscal and current account balances.

Kuwait and the UAE are also Aa2 rated, while Bahrain and Oman rank slightly below with A2 ratings. In the case of Saudi Arabia, Cooper noted that the governance indicator is responsible for pulling down the country's overall rating to below that of Kuwait, Qatar and the UAE. This indicator is known to be a very subjective criteria. Moodys bases its assessment on the World Bank Government Effectiveness Indicator.

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