In effect, these countries budget deficits due mainly to lower oil receipts and spending gaps are forecast to “peak” at over $153bn this year against $119bn that was estimated in 2015. This deficit is expected to pick up but not immediately, as acknowledged by all around in the Gulf. It is as if it is expected that budget deficits in the GCC are likely to stay over $100bn each year until 2021, requiring the regional economies to recalibrate their growth strategies, many money markets reports say. In the meantime, all credit ratings of the latter are without any respite going ahead and rating rather downwards all the GCC economies. So are all GCC countries facing further credit downgrades? Here is Argaam of October 4th, 2016 published article with a straight forward reply.
GCC states could face further credit downgrades
Gulf countries may face further credit rating downgrades as deficits continue to widen because of low oil prices, Switzerland-based Fisch Asset Management said in a research note.
Saudi Arabia, Oman, and Bahrain have all been downgraded since 2015, although Qatar and Bahrain have shown greater resilience, the report added.
“While bond yields in the GCC still look attractive compared with other markets, investors need to believe in issuers – for example, the reforms scheduled for the Saudi economy,” said Philipp Good, head of Portfolio Management at Fisch Asset Management.
“In our view, momentum has peaked, so our strategy for the GCC is defensive,” he said.
Fisch’s market trend indicator for pricing from mid-August to late-September showed decline in performance in Abu Dhabi equities, Dubai corporate bonds and equities, Kuwait corporate bonds and equities and Saudi Arabian equities.
However, credit default swaps in Qatar showed improvement.
“We think there will probably be some re-pricing,” Good said. “Global debt markets are uncertain at the moment, in part due to the US election, the Italian referendum and the problems experienced by Deutsche Bank.”