The dilemma of negative ratings for the Gulf: Saudi Arabia is...

The Corona pandemic continues to bring about great changes in all the countries of the Gulf Cooperation Council, which have affected all levels and fields, and the most prominent losers are the Saudi and Emirati economies, which are witnessing an unprecedented recession.

In this context, a recent international report issued by Morgan Stanley said that the recent ratings issued by international rating agencies will negatively affect the financial centers of the Gulf Cooperation Council countries, and may put them in trouble, especially in light of the current global health conditions from the outbreak of the Corona Covid virus. 19-The decline in oil prices and the high levels of fiscal deficits in the Gulf budgets to record levels.
The international report, which was reviewed by Al-Arabi Al-Jadeed, dealt with the credit risks and the ability of the countries of the region to pay off debts. The ratings of Gulf countries, led by Saudi Arabia, have declined, while Qatar has retained its rating and creditworthiness, and has placed Kuwait in the stable region until now, according to rating agencies Fitch Moody’s and Standard & Poor’s.

The report stated that the Gulf Cooperation Council (GCC) countries were the most affected among the countries of the Arab region due to the decline in oil revenues against the background of the collapse of oil prices, which is the main source of income in all Gulf countries.
The report indicated that most of the Gulf countries resorted to exaggerated withdrawals from their cash reserve funds, and depleted their financial resources in the absence of solutions, which threatens great risks to the future of Gulf economies in the absence of financial reforms.

Negative view of Saudi Arabia
Saudi Arabia is the most affected in the Arab region from the Corona outbreak crisis, as it suffered heavy losses due to the oil war that led to the collapse of prices, the decline in oil revenues, the exacerbation of the budget deficit and the continued withdrawal of reserve assets, as well as the involvement in external conflicts and the military intervention in Yemen that drains financial resources, Or the economic losses of the Houthi attacks on vital installations in Saudi Arabia.
With the decline in oil prices and the halt of business and commercial activities due to precautionary measures to confront the outbreak of the Corona virus in Saudi Arabia, Moody’s changed its view of the Saudi economy from stable to negative with the credit rating fixed at A1 in early May.
The negative outlook reflects the increased risks of declining financial strength of the Kingdom due to the shock of oil demand and lower prices, as well as the uncertainty about the government’s ability to compensate for the decline in oil revenues, and to maintain the stability of debt and asset burdens in the medium term.
For his part, the director of the Arab Gulf Center for Economic Studies in Riyadh, Jasser Abdul Aziz, told Al-Arabi Al-Jadeed, through the SkyB program, that the Corona crisis revealed a clear weakness in the Saudi economy as a result of its successive blows over the past months regarding With the decrease in oil and its depletion in the war in Yemen, as the authorities were forced to hold citizens accountable for the failure of economic policies over the past years by increasing taxes, stopping the cost of living allowance and increasing fuel prices.
Abdulaziz added, during a Skype call, that the Kingdom may lose its economic position if it does not initiate steps of economic reform, diversify sources of income, increase non-oil revenues, and stop foreign interference and the war in Yemen that drained the Kingdom’s resources.
On an annual basis, foreign reserves declined by 13% in June, compared to the same month last year, according to official data.
Saudi Arabia lost 50 billion dollars of its foreign reserves during the months of March and April. 40 billion dollars of it was transferred to the Public Investment Fund (the state sovereign fund), to support the fund’s investments abroad, according to Anadolu Agency.
Saudi public debt rose to $ 181 billion by the end of 2019, which represents 24 percent of GDP, while it was expected to rise to $ 201 billion in 2020 (26 percent of output), before the emergence of “Corona”.

And Saudi Finance Minister Mohammed Al-Jadaan said in a press statement last July that his country intends to issue international debt again during the current year, but the currency of the offering has not been determined.
And last March, Al-Jadaan said that the government will borrow more this year, with an increase of 100 billion riyals (26.7 billion dollars) over what was planned before Corona.

Economic concerns in the Emirates
Like the rest of the Gulf countries, the UAE has been greatly affected by the repercussions of the Corona pandemic crisis, despite the stability of its credit rating, as the credit rating of Abu Dhabi was stabilized by Moody’s, and it received an AA rating with a stable outlook also by Fitch and Fitch. Standard & Poor’s.
The UAE has sought to ease restrictions and coexist with “Corona” through new measures in order to stop the bleeding of losses that have continued since the beginning of the virus outbreak in the country, due to the decline in oil revenues and the cessation of economic activities in Dubai that depend on tourism, logistics and real estate trade, as well as postponing an exhibition. Expo Dubai 2020 for a year.
In turn, the Emirati economic researcher, Abdulaziz Al-Saadi, told Al-Arabi Al-Jadeed that the losses of the UAE economy in just 6 months reached more than $ 78 billion, calling on the UAE government to take serious steps to address economic crises and fight corruption.
Earlier, the Abu Dhabi government resorted to borrowing again, as it began marketing an issue of existing dollar bonds maturing in 2025, 2030 and 2050 and offered them during the past month.

Kuwait: stable rankings
During the past months, Kuwait has suffered from the economic repercussions of the Corona pandemic, especially the worsening budget deficit, as a result of the decline in oil revenues that represent more than 90% of GDP, as well as many crises, such as the lack of liquidity in light of the failure to pass the public debt law to borrow something Almost $ 65 billion.
In April 2020, Fitch affirmed Kuwait’s credit rating at AA with a stable outlook.
Last July, Standard & Poor’s revised its outlook for the Kuwaiti economy from stable to negative, and kept the rating at AA- due to the risks related to depleting cash liquidity with the government and the reserves of the General Reserve Fund.
On September 22, Moody’s downgraded Kuwait’s sovereign rating from Aa2 to A1, with a change in the outlook to stable, while this time the decision came due to increased government liquidity risks and weak evaluation of Kuwaiti institutions and governance.
For his part, Kuwaiti economic expert, Marwan Salama, warned of the impact of Kuwait’s credit rating downgrade on the country’s financial position, which may cause a weakening of investor confidence in light of the hopes for economic recovery, especially in light of the recession that followed the outbreak of the Coronavirus.

Salameh said, during a phone call with Al-Araby Al-Jadeed, that without reforming the budget and agreeing to borrow in order to provide liquidity, as well as other reforms such as imposing progressive taxes, reducing subsidies and fighting corruption, economic conditions will not improve in the short term.

Bahrain is in trouble
Fitch’s credit rating cut in Bahrain reflects the dual impact of the Corona pandemic and the decline in oil prices on the Gulf economy, which is causing a noticeable increase in the budget deficit and government debt, as well as putting pressure on already low foreign exchange reserves and leading to a sharp contraction in GDP.
At the end of last August, Fitch downgraded the kingdom from BB- to B + with a stable outlook, while Standard & Poor’s revised its outlook on the Bahraini economy from positive to stable, following the collapse in oil prices, and affirmed the credit rating at B +.

Financial pressure on Oman
After the Corona epidemic and the drop in oil prices left their effects on the country’s economy, Moody’s lowered the credit rating of the Sultanate of Oman twice this year to Ba3, and changed its outlook to negative, while Fitch also took the same action after lowering the country’s rating to BB- Negative outlook last August.
Standard & Poor’s also expects that net government debt will continue to rise, reaching 37% of GDP by 2023, while it also speculated that exacerbating financial pressures and rising debt stocks for government-owned companies will pose a threat to the Sultanate’s government budget.

A stable view of Qatar
All credit rating agencies kept the sovereign evaluation of the State of Qatar, in its latest periodic reports, at stable levels. Standard & Poor’s said that the sovereign evaluation of the State of Qatar at the level of “AA-“, with a “stable” outlook.
Despite the sharp economic downturn and the drop in oil and gas prices, the agency does not expect a fundamental deterioration that exceeds “our expectations in the government’s financial positions and foreign stocks.”
As for Moody’s, in the latest report issued by the agency, which is considered a good and excellent rating in light of the economic changes taking place in the world and led to the downgrading of some other markets’ ratings, Moody’s affirmed Qatar’s sovereign rating at the Aa3 level, while confirming the outlook for the Qatari economy at a stable level. This confirms once again Qatar’s economic resilience and its ability to face challenges and steadfastness in facing them. Finally, Fitch Ratings Agency affirmed the credit rating of the State of Qatar at (AA-) with a stable outlook. In its latest report, it affirmed that the classification reflects a strong position of the net sovereign assets of the State of Qatar.