S&P’s emerging market classification includes Saudi Arabia, Turkey, Russia, India, China, Indonesia, Philippines, Malaysia and Thailand, among others.
Saudi Arabia is currently facing a double whammy of coronavirus outbreak and plummeting oil prices, which resulted from the ongoing price war with Russia and a decline in global demand.
The rapidly spreading coronavirus, which has infected more than 800,000 people worldwide, has sent economies teetering amid passenger aircraft groundings, shop closures, production halts and heightened quarantine measures.
In Saudi Arabia, as well as the UAE, precautionary measures have led to the shutdown of passenger flights, malls, schools and non-essential commercial establishments. Billions of dollars have already been rolled out to prop up the economy and help minimize the financial fallout.
According to S&P, countries that previously experienced “structural weaknesses” before the outbreak exploded will suffer the most. Only a few economies will have room to cushion the impact of the crisis, including those that have investment-grade ratings, strong fiscal and monetary profiles and sufficient savings.
“Still, these countries will see sharply lower economic growth in 2020… Discretionary consumption will be battered due to virus prevention efforts, while lockdowns across the world mean that tourism and related spending will collapse,” S&P added.
It added that a prolonged outbreak will depress economic activity and stress health systems, while an extended shock to investor sentiment could heighten refinancing risk, especially for low-rated issuers.
“Credit conditions in EMs will rapidly deteriorate as the COVID-19 pandemic advances. The virus contagion is growing in key EMs, and governments are taking measures to tackle the epidemic,” S&P added.
According to Raghu Mandagolathur, senior vice president for research at Kuwait Financial Centre, countries like Saudi Arabia should be able to weather the health crisis, thanks to their large financial buffers.
“The UAE, Saudi Arabia, Kuwait and Qatar have sizeable reserves that would enable them to ride through a recessionary phase and provide the necessary stimulus for their local economies to recover,” Mandagolathur told Zawya recently.
Among the Gulf Cooperation Council (GCC) states, only Saudi Arabia falls under the S&P classification of emerging markets. The kingdom recently announced a $13.3 billion economic stimulus package to prop up businesses impacted by the pandemic.
The GCC state had earlier failed to reach a deal with Russia to cut oil production, triggering a 30 percent fall in oil prices. On Monday, crude oil benchmarks posted declines of more than 50 percent, the worst quarterly drop ever recorded.
(Writing by Cleofe Maceda; editing by Seban Scaria)
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