Arab countries lack systems to secure credit ratings that fully reflect their wealth, Moody's says.
Gulf Arab oil producers lack the transparency and legal and administrative systems needed to secure credit ratings that would fully reflect their wealth, Moody's Investors Service said on Wednesday.
Geopolitical risk, such as tensions between Iran and the West, and a reliance on potentially volatile energy export also prevent the six countries of the Gulf Cooperation Council from getting Moody's highest rating of "Aaa", the ratings agency said.
A near fivefold increase in oil prices since 2002 has handed Saudi Arabia and its five neighbours budget and current surpluses and the rapid economic growth. Still, their ability to repay debt is rated lower than some states with budget deficits and slowing economies.
"Countries with weak institutions are more likely to have erratic economic policies, which may affect not only a government's ability but also its willingness to service debt on a timely basis," Moody's analyst Tristan Cooper said in a report.
Reliable official data is also important for monitoring economic and political events, Cooper said.
Credit ratings measure ability to repay debt, and under Moody's ratings scale, Aaa is the highest. The wealthiest Gulf states, Qatar, Kuwait and the United Arab Emirates are rated two notches below at "Aa2".
Gulf states have weaker "governance indicators" including administrative and judicial systems, than the average for Aaa rated countries, Moody's said, citing statistics from the World Bank.
However, strengthening government balance sheets have helped the Gulf states - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates - achieve ratings ranging from A2 to Aa2.
"These are high investment-grade ratings and denote a very low risk of default," said Tristan Cooper, author of the report.
The six states are pushing through legal and administrative reforms and trying to improve transparency as they court foreign companies to develop financial services and other sectors of that do not rely on energy prices.
Countries with an Aaa rating include Singapore, the United States and Britain. Aa2 is still a relatively high rating, and is considered investment-grade, which ends at the Baa3 level. Egypt and Morocco are one level below at Ba1.
"Aaa rated countries tend to be located in regions with a long track record of political stability," Moody's said, listing tensions over Iran's nuclear programme and ongoing violence in Iraq among its concerns.