By Sarah Townsend
Agency amends outlook for UAE, Qatar, Kuwait from ‘negative’ to ‘stable’
Moody’s Investors Service has amended the outlook for the UAE, Qatar and Kuwait from ‘negative’ to ‘stable’, but downgraded Qatar’s credit rating.
The rating agency affirmed the long-term Aa2 issuer rating for the UAE and Kuwait, but downgraded Qatar’s issuer rating from Aa3 to Aa2.
It said the key drivers for the rating downgrade were a “weakening of Qatar’s external position and uncertainty over the sustainability of the country’s growth model beyond the next few years”.
Qatar’s total external debt reached almost 150 percent of GDP in 2016, up from an estimated 111 percent in 2015. The level and increase in Qatar’s external debt-to-GDP ratio is the highest amongst Aa2-Aa3-rated sovereigns, Moody’s noted.
It said that as a result of this “much larger external debt load”, external vulnerabilities for Qatar are somewhat larger than for highly-rated peers in the GCC.
Excluding government financial assets managed by Qatar Investment Authority (QIA), Moody's estimates that Qatar’s external vulnerability indicator was about 300 percent of available foreign exchange reserves in 2016, up from 218 percent in 2015, compared to an estimated 200 percent for the UAE and 86 percent for Kuwait.
However, the stable outlook for Qatar reflects Moody’s view that implementation of fiscal and economic reforms, coupled with sizable reserve buffers, will help prevent Qatar’s credit profile from deteriorating further and remain consistent with a Aa3 rating, the agency added.
It said its reasons for amending the UAE and Kuwait’s outlook from negative to stable were, in the case of the UAE, effective policy response to the low oil price environment via acceleration of the country’s reform agenda and expected improvement in the fiscal and current account positions and the country’s economic growth and diversification prospects.
In the case of Kuwait, Moody’s said there were “sufficient signs of the government’s institutional capacity to effectively implement its fiscal and economic reform programme to preserve creditworthiness in the medium-term.”
This reform programme has the objective of diversifying and enhancing Kuwait’s economic base and budgetary revenues.