Abu Dhabi tops agencies’ GCC sovereign ratings

Blondet Eliot/Abaca via Reuters Connect

• Fitch, S&P, Moody’s rate Abu Dhabi top in the GCC
• Saudi Arabia’s diversification helps score, but may be overinvested
• Bahrain and Oman are rated comparatively poorly

UAE capital Abu Dhabi is the highest-rated sovereign in the GCC, while Bahrain and Oman are the only sub-investment grade credit ratings, according to the three major US agencies – Fitch, Moody’s and S&P Global.

All three ratings agencies use similar systems, although there are differences in the way their ratings are conveyed. In the Gulf, S&P is consistently more bearish and does not rate the United Arab Emirates at all. S&P rates Qatar, Saudi Arabia and Oman below its two peers, although it has positive outlooks for Bahrain and Oman. Fitch, meanwhile, is a notch more positive on Kuwait.

A sovereign credit rating is an assessment of a country’s creditworthiness. It is applied to all bonds issued by a government. The ratings are important guides to institutional investors around the world who use them as benchmarks. Many pension funds, for example, are limited by their statutes to investing only in investment grade credits. A re-rating can move markets.

The outlooks attached to the ratings are also important because they indicate a likely re-rating.

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How the GCC fares

The ratings agencies consider a variety of factors when preparing their ratings. Each GCC state – and Abu Dhabi, which is rated separately from the UAE as a whole – has a different outlook depending on its unique circumstances.

Abu Dhabi

Abu Dhabi ranks as the highest-rated sovereign across the three ratings agencies.

Moody’s says its Aa2 rating is underpinned by Abu Dhabi's strong balance sheet and its net creditor position.

Similarly, Fitch’s AA rating reflects Abu Dhabi's high GDP per capita and strong fiscal and external metrics.

Saudi Arabia

Earlier this month, Moody’s upgraded the kingdom’s outlook to positive on the back of broad-based structural reforms and investments in a range of diversification projects.

However, Fitch noted rising public sector spending outside the budget, including on ambitious giga-projects, and warned of the potential for higher debt of state-owned and government-related entities.

Kuwait

Fitch cites Kuwait's strengths as its strong fiscal and external balance sheets. However, weaknesses include frequent institutional gridlock and political constraints on reform.

Bahrain

Along with Oman, Bahrain has some of the lowest credit ratings within the GCC. Last month, Moody’s affirmed Bahrain’s B2 rating.

Oman

Earlier this month, Moody’s upgraded Oman’s credit rating, reflecting improvements in its debt burden and debt affordability during 2022, mainly as a result of a large oil and gas revenue windfall.

S&P Global upgraded in March noting that the Omani government is repairing its balance sheet.

In April, Fitch revised its outlook on Oman to positive from stable, saying there were still external vulnerabilities in the form of debt maturities averaging $3.3 billion in 2024-2026.

Qatar

Qatar’s strong credit ratings reflect its hydrocarbon reserves, high per-capita income and the government's strong balance sheet.

Moody’s cites Qatar’s “moderately high public-sector debt burden” as a credit challenge.

UAE

Similar to Abu Dhabi, Moody’s Aa2 credit rating for the UAE is supported by its high incomes, low debt levels and solid institutions and policymaking, which contribute to progress in economic diversification.

That said, the agency observed there were some shortcomings in the UAE’s institutional transparency while data disclosure practices lag relative to peers.

Moody's said the UAE's addition to the Financial Action Task Force's grey list in March 2022 was a weakness.

S&P put out a statement in May addressing Dubai's prospects without allocating a formal rating. The agency forecast a reduction in government debt to about 51 percent of GDP in 2023, from a high of 78 percent in 2020, but said that government-related entities also had significant obligations.

Detailed agency breakdowns

The ratings agencies update their grades on their own schedules. Below are in-depth details of when each agency last rated the GCC states and the actions they took.

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