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Fri 29 Jul 2016 12:03 AM

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Gulf SWFs see worsening creditworthiness during 2016

S&P delivers verdict as Bahrain, Oman, and Saudi Arabia are sets to see average fiscal deficits of 12% of GDP per year in 2016 and 2017

Gulf SWFs see worsening creditworthiness during 2016

Overall sovereign creditworthiness in the Middle East and North Africa (MENA) region has continued to deteriorate in 2016, according to a new report by Standard and Poor's.

The report, which covers 13 sovereigns including Abu Dhabi, Bahrain, Kuwait, Oman, Qatar, Ras Al Khaimah, Saudi Arabia and Sharjah, said the average rating is now close to 'BBB', one notch lower than in mid-2015.

S&P Global Ratings sovereign credit analyst Benjamin Young said that when weighted by GDP, the average moves closer to 'BBB+'.

"This average, weighted by nominal GDP, has fallen more sharply than the unweighted average over the past 12 months mainly because we have lowered the rating on the region's largest economy, Saudi Arabia," Young said.

In Bahrain, Oman, and Saudi Arabia, S&P said it expects fiscal deficits to average 12 percent of GDP per year in 2016 and 2017. Although much lower, fiscal deficits for Abu Dhabi and Qatar are nonetheless above 5 percent of their GDPs.

While the ratings on the regional net hydrocarbon importers - Jordan, Egypt, Morocco, Lebanon, Ras Al Khaimah, and Sharjah -have remained unchanged, S&P has revised the outlook on Jordan and Egypt to negative while ratings on Lebanon also have a negative outlook.

Young added: "Given the uniformly high dependence among GCC sovereigns on receipts from hydrocarbon exports, the consequences of a sharp fall in prices are clearly visible in both fiscal and external data.

"While the resulting imbalances differ in scale and duration, one commonality among GCC sovereigns is the emergence of almost unprecedented fiscal financing needs."

S&P also said deposit growth in GCC domestic banking systems has slowed dramatically from double-digit growth over 2012-2014. Balance sheet strength remains a characteristic of the region, with only Bahrain being in a fiscal net debt position.

S&P Global Ratings publishes a MENA sovereign ratings outlook twice a year, including rating and outlook trends as well as sovereign-specific summaries.The next sovereign rating outlooks will be published in January 2017.

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