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A sharp drop in oil prices, the outbreak of coronavirus as well as a slump in tourism and a weakening demand for non-oil exports add to rating pressures for Middle East and Africa (MEA) sovereigns, Fitch Ratings said.
Earlier in March, OPEC failed to strike a deal with its allies, led by Russia, on oil production cuts. This means members can now pump what they like starting April 1.
Saudi Arabia slashed crude prices for April and planned output hikes after Russia refused to support deeper oil production cuts.
Brent oil prices plunged as a reaction to the news and have been trading close the $35 a barrel since, down from the $51 a barrel level recorded at the beginning of March.
“Fiscal deficits will consequently widen in all oil producers. For countries in the Gulf Cooperation Council (GCC), we estimate that a change of USD10 in the price per barrel of oil tends to affect government revenues by 2%-4% of GDP,” Fitch said in a note.
According to the rating agency, the break-even oil price for Bahrain at $96 a barrel, for Saudi Arabia at $91 a barrel, for Oman at $82 a barrel, for Kuwait at $68 a barrel, for Abu Dhabi at $65 a barrel, for Qatar at $55 a barrel.
Angola, Bahrain, Iraq, Nigeria, Oman, Cameroon and Gabon are among the countries where weaker balance sheets and policy buffers will limit governments' capacity to respond to the oil price slump without putting pressure on their ratings, Fitch said.
For Abu Dhabi, Kuwait Qatar and other higher-rated oil-producing sovereigns in the region “ample fiscal and external buffers will provide greater headroom to weather the shock,” according to the note.
Oil importers in the MEA region will benefit from the drop-in hydrocarbon prices but this will be more than offset by other adverse effects linked to the epidemic, such as a drop in external demand and lower remittances.
Sovereigns in the region will also be challenged by subdued prices for metals and agricultural products due to the demand shock associated with the virus.
Global tourism flows are likely to fall sharply in 2020 due to the disease. This could affect Cabo Verde, Egypt, Lebanon, Morocco, Rwanda, Seychelles, Tunisia and Uganda, Fitch said.
According to the rating agency, market volatility may also impede some countries from coming to market in the near term.
“Prior to the coronavirus outbreak, we had expected foreign-currency issuance by Middle Eastern economies to be around USD30 billion in 2020, representing both new financing and rollover of existing debts,” the note said.
(Reporting by Gerard Aoun; editing by Seban Scaria)
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