RAM: Qatar and UAE to outperform GCC peers

0
Notably, Qatar and Kuwait are not expected to record substantial fiscal deficits in 2015.

Notably, Qatar and Kuwait are not expected to record substantial fiscal deficits in 2015.

KUCHING: RAM Rating Services Bhd (RAM) sees Qatar and the United Arab Emirates (UAE) outperforming its Gulf Cooperation Council (GCC) peers during the current period of sustained low oil prices.

The GCC – encompassing Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE – grew 5.4 per cent on average from 2011 to 2014 but is expected to experience slower growth over the medium term.

“What sets Qatar and the UAE apart are their more diversified economies, sturdy fiscal reserves and the latitude provided by their flush sovereign wealth funds,” highlighted Esther Lai, RAM’s head of Sovereign Ratings.

In its GCC Focus report yesterday, RAM pointed out that GCC economies are highly exposed to variations in fossil-fuel prices in terms of economic activity, fiscal revenues and forex earnings.

“The current level of oil prices is expected to slow the growth of GCC nations as the region’s previously unmatched fiscal space – which had supported the respective economies in the past through sizeable capital formation – had declined considerably. Notably, Qatar and Kuwait are not expected to record substantial fiscal deficits in 2015.

“Despite more adverse external conditions, the growth of GCC economies will still be supported by a healthy demographic structure (supplemented by foreign workers) and productivity gains arising from ongoing structural reforms.

“These reforms, which are at the core of each country’s development plans, come in the form of improvements in business environment, cultivation of indigenous human capital and expansion of domestic infrastructure capacity.”

Consequently, the UAE and Bahrain – the region’s forerunners in these types of reforms – are more resilient to shocks.

Aside from a sustained period of low oil prices, growth risks native to GCC economies are varied, it said. These include reform-implementation risks, domestic and external security concerns, and succession risks – all of which have, to some extent, derailed or delayed positive structural reform policies in the past.

“In our assessment of the region in this regard, the UAE’s more developed regulatory environment minimises the likelihood of these risks materialising and their impact.

“Although most of the GCC economies have large stores of reserves to ease funding constraints during adverse economic periods, the levels of reserves are not uniform across the region and some (Oman and Bahrain) are more vulnerable to a sustained period of depressed oil prices.

“Notably, Bahrain’s recent sovereign-rating downgrade to gBBB2(pi) in August 2015 was premised on the significant deterioration of its fiscal position. Nevertheless, fiscal reserves are not limitless and even economies with large reserves will eventually have to make structural adjustments to ensure growth and fiscal sustainability.

“Future rating actions in respect of each of the GCC sovereigns will be dependent on their ability to sustain growth and maintain fiscal resilience.”