Moody’s cuts outlook for Saudi, UAE, Kuwait and Qatar, lowers Bahrain to junk

Ratings agency Moody’s has cut its outlook for Saudi Arabia and three other Gulf States and lowered Bahrain’s rating to junk.

Moody’s said Saudi Arabia’s Aa3 rating was placed under review for a possible downgrade to give time to assess Riyadh’s effort for economic diversification.

The agency said Saudi’s $650bn foreign assets were large but potential calls on the funds are growing due to current account and budget deficits as well as interventions to defend its currency peg to the dollar.

Moody’s also put the UAE, Kuwait and Qatar on review for downgrades. It acknowledged the emirates’ efforts to diversify its economy and introduce tax reforms but said the “structural shock to the oil market” was weakening the government’s balance sheet.

Bahrain’s rating was cut by one notch to Ba1, below investment grade. The agency said it would be kept on review for a further downgrade due to Bahrain’s smaller reserves of both cash and oil.

Much of Moody’s analysis was attributed to its new forecasts for Brent crude. It expects oil to stay at $33 a barrel in 2016 and $38 in 2017, before reaching $48 by 2019.

In December, the agency predicted $43 a barrel in 2016.

Oman’s rating was also cut by two notches to A3 late last month and kept on review for a further downgrade.

In February, rival Stand & Poor’s also cut the ratings of Saudi Arabia, Oman and Bahrain. It cut the former by two notches to A-minus, three below Moody’s rating and lowered Bahrain to junk.