Overall sovereign creditworthiness in the Middle East and North Africa (MENA) region has continued to deteriorate, according to a report published today titled "Middle East And North Africa Sovereign Rating Trends 2017," on RatingsDirect. The report covers the 13 sovereigns we rate in the region: Abu Dhabi, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Ras Al Khaimah, Saudi Arabia, and Sharjah.
"We rate eight of the 13 MENA sovereigns in the 'BBB' rating category or above," S&P Global Ratings sovereign credit analyst Trevor Cullinan said. "The average MENA sovereign rating is closer to 'BBB' than 'BBB-', but has been trending downward. When weighted by GDP, the average moves closer to 'BBB+'."
This average, weighted by nominal GDP, has fallen more sharply than the unweighted average over the past 12 months mainly because we have lowered the rating on the region's largest economy, Saudi Arabia. Since our regional publication in July 2016, we lowered our rating on Bahrain to 'BB-' from 'BB'. We have also revised our outlooks on Egypt and Lebanon to stable from negative, and our outlooks on Oman and Sharjah to negative from stable.
Available data for 2016 shows a weakening trend in GCC economic activity, reflecting the impact of low oil prices and the resulting fiscal consolidation and reduced banking sector liquidity. We expect average GCC GDP growth to slow to about 2% in 2016, compared with closer to 4% in 2015 and to remain around these relatively weak growth rates in 2017. Government's across the region implemented expenditure cuts and subsidy reforms that have weakened both corporate and household activity, while reduced hydrocarbon deposits in regional banking systems and government domestic borrowing have increased interbank rates and squeezed banking sector liquidity.
The long-term sustainability of GCC economic growth and the ability of their economies to absorb future increases in their working populations and diversify government revenues away from the hydrocarbons sector will rely on the prospects for growth in the non-hydrocarbon sector. In our view, significant challenges remain in this regard and meaningful diversification will not happen in the short term.
S&P Global Ratings publishes a MENA sovereign ratings outlook twice a year, including rating and outlook trends as well as sovereign-specific summaries. Other regional reports cover Asia-Pacific, Emerging Markets, the eurozone, Central and Eastern Europe and CIS, Latin America and the Caribbean, and Sub-Saharan Africa. We also publish a global overview (see "Global Sovereign Rating Trends 2017," published on Jan. 10, 2017). The next sovereign rating outlooks will be published in July 2017.