Moody’s has lowered the credit ratings of Oman and Bahrain and placed the remaining Gulf oil exporters on review for downgrade.
The credit ratings agency has justified its move citing that low crude oil prices have weakened the GCC economies.
The cut was made to ‘reflect the impact of the continued large fall in oil prices’, Moody’s said in a statement.
Moody’s review covers OPEC kingpin Saudi Arabia – the rating of which was cut two notches to A- last month by Standard and Poor’s – along with the United Arab Emirates, Kuwait and Qatar.
The agency has forecast oil prices to average $33 a barrel in 2016, $38 a barrel next year and $48 a barrel by 2019.
Bahrain’s rating was lowered one notch to Ba1, while Oman’s rating was lowered two notches to A1; still an upper-medium grade with low credit risk.
‘Although a relatively small exporter, oil and gas accounted for 75% of Bahrain’s exports and 86% of public revenues between 2010 and 2014’, Moody’s said.
As for Oman, the oil and gas income made up 90% of government revenues. ‘The Gulf Sultanate has a comparatively weaker asset cushion with government financial assets amounting to only about three years of spending’, the agency said.
Moody’s said the structural shock set off in the oil market was weakening Gulf States’ balance sheets, their economies and therefore; their credit profile.
For Saudi Arabia, it said oil accounted for 84% of exports, 40% of Gross Domestic Product (GDP) and 62% of consolidated government revenues.
Before the decline in oil prices, the crude income contribution was around 90%.
Between 2013 and 2015, revenue as percentage of GDP declined 23% and the fiscal balance moved from a surplus of 6.5% of GDP in 2013 to a deficit of 15% last year.
During the same period, the kingdom’s current account balance relative to GDP slid from a surplus of 18.2% to a deficit of 5.7%, Moody’s said.
‘The fuel subsidy reforms will help reduce pressure on budgets but are not enough to offset deficits resulting from low oil prices’, Moody added in its statement.
