S&P downgrades Kuwait and Oman, affirms rest of GCC

GULF COUNTRIES - In Brief 26 Mar 2020 by Justin Alexander

---

In the first coordinated set of rating actions since the onset of the twin crises of coronavirus and the oil crash, Standard & Poor’s downgraded Kuwait to AA- and Oman to BB- (Negative outlook) and also lowered Bahrain’s outlook to Stable (from positive) but affirmed its B+ rating, the lowest in the GCC. It affirmed Saudi Arabia (A-) Qatar(AA-) and Abu Dhabi (AA), all with stable outlooks.S&P has one of the most pessimistic oil price assumptions this year ($30, half its pre-crisis assumption), although it sees a rebound to $55 by 2022, in line with its previous forecasts. However, the sharp dip will worsen fiscal and external metrics, putting pressure on countries that were already strained or struggling to reform.The negative actions on Oman and Bahrain are not surprising given Bahrain’s high level of debt and Oman’s large twin structural deficits. Both have been in a downgrade cycle since 2016 by all the ratings agencies, with Fitch and Moody’s also downgrading Oman in recent weeks. The affirmations of Qatar and Abu Dhabi are also not a surprise, given their strong fiscal and external positions and foreign asset buffers.However, the downgrade to Kuwait will come as a surprise to many given the country’s vast net sovereign wealth, totalling more than five times GDP. In the current crisis, its CDS spreads have remained markedly lower than peers Abu Dhabi and Qatar, largely due to those assets. Where Kuwait differs, though, is in its political system. Its strong obstructionary parliament, and other institutions, have long served as a barrier to its development (including its failure to exploit more of its Northern oil fields) and make fiscal consolidation extremely diff...