Dubai: Moody’s Investors Service on Wednesday changed the outlook on Qatar’s rating to negative from stable and affirmed long-term issuer and senior unsecured debt ratings at Aa3.
The key driver for the outlook change is the economic and financial risks arising from the ongoing dispute between Qatar and a group of countries, including its fellow Gulf Cooperation Council (GCC) neighbours — Bahrain, Saudi Arabia and the United Arab Emirates as well as some other mostly Arab nations including Egypt (B3 stable).
In Moody’s view, the likelihood of a prolonged period of uncertainty extending into 2018 has increased, which carries the risk that Qatar’s sovereign credit fundamentals could be negatively affected.
The ongoing dispute is unlikely to be resolved soon in Moody’s view.
The coalition countries have enacted a series of measures such as severing diplomatic relations, closing land, sea and air links, and expelling Qatari nationals from their countries. In addition, they have submitted a list of 13 demands as condition for pulling back of these measures. Public exchanges between the various parties in recent weeks and previous periods of heightened tensions between Qatar and other GCC countries suggest that a quick resolution is unlikely in the dispute and that the stalemate may continue for some time.
Credit rating agency Standard & Poor’s (S&P) was the first to take rating action on Qatar within days after the diplomatic row erupted. The ratings agency has lowered its long-term rating on the State of Qatar to AA- from AA and placed the rating on credit watch with negative implications.
Moody’s has kept Qatar’s rating at Aa3 taking into account a number of credit strengths embedded in Qatar’s credit profile and reflects Moody’s view that the sizeable net asset position of the Qatari government and exceptionally high levels of wealth will continue to provide significant support to the sovereign credit profile for the time being. However, the ratings agency noted that depending on the duration and potential further escalation of tensions, the dispute could negatively affect Qatar’s economic and fiscal strength.
“Absent a swift resolution, economic activity will likely be hampered by the measures imposed so far. While Qatar’s hydrocarbon exports are not affected at this stage, there have been reports of disruptions to certain non-hydrocarbon exports and a forced shutdown of helium production. The termination of direct flights between Qatar and coalition countries will affect services trade in areas like consulting and tourism. This will likely also affect the profitability of corporates, including government-owned or government-related entities such as Qatar Airways,” said Steffen Dyck, senior credit officer, sovereign risk group of Moody’s.
Moody’s thinks that a prolonged period of uncertainty will negatively affect business and foreign investor sentiment and could also weigh on the government’s long-term diversification plans to position the country as a hub for air traffic, tourism, medical services, education, and sports through a higher risk perception among foreign investors.
S&P also applied the same rationale while downgrading Qatar’s rating last month. “We believe this will exacerbate Qatar’s external vulnerabilities and could put pressure on its economic growth and fiscal metrics. The negative credit watch encompasses numerous downside risks to the ratings as a consequence of recent events. At this stage, we note that there are numerous uncertainties regarding Qatar’s response, the extent to which these measures will be imposed, and their longevity,” S&P said in a note on June 8.
