S&P Global downgrades Qatar’s rating to AA-

S&P Global downgrades Qatar’s rating to AA-

Saudi Arabia and its allies alleged that Qatar is providing support to extremist groups.

The Dollar Business Bureau

Credit rating agency S&P Global Ratings on Wednesday lowered the credit rating of Qatar by one level to AA- and put the country on a watch on concerns of further downgrading after four Gulf Arab nations severed ties with Doha.  

“We believe this will exacerbate Qatar's external vulnerabilities and could put pressure on economic growth and fiscal metrics,” S&P Global said. 

Saudi Arabia, Bahrain, Egypt and the UAE on Monday announced that they were severing diplomatic relations and closing air, land and sea links with Doha.  

Saudi Arabia and its allies alleged that Qatar is providing support to extremist groups and serving the interests of Riyadh’s regional rival Iran, claims which Doha has strongly declined.  

“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,” said the credit rating agency. 

The agency noted a substantial rise in the nonresident deposits in the banks of Qatar, and a surge in their providing loans to the government for funding infrastructure projects.  

“In our view the latest events potentially destabilise the nonresident deposits and aggravate an outflow,” it added. 

S&P Global Ratings further said that Doha should have to tap its central bank reserves and sovereign wealth funds to balance a major funds outflow, and considers international financing of the country to be at elevated risk.  

It also stated that the Arab nations which have cut off relations with Qatar provide 15% of the country’s imports, possibly causing considerable shortages of major commodities, such as those which are used in construction projects and the food items. 

The rating agency cautioned that it could further downgrade the country’s rating if further severe restrictions are announced from Saudi Arabia and the other group of nations, or from other trade partners. 

In the wake of uncertainties regarding Doha’s response and the steps that may be taken, S&P Global will further assess the impact of diplomatic row in its next review scheduled on August 25. 

On the credit rating scale, AA- rating comes in the mid of investment grade and it means that a borrower has a very solid capacity of repaying its debts. 

The Dollar Business Bureau - Jun 08, 2017 12:00 IST