Saudi Gazette report

Frankfurt am Main — Moody’s Investors Service changed the outlook on Qatar’s rating to negative, a press statement from the ratings agency said.

The key driver for the outlook change to negative is the economic and financial risks arising from the ongoing crisis between Qatar and four Arab countries calling to fight terrorism, it said.

In Moody’s view, the likelihood of a prolonged period of uncertainty extending into 2018 has increased and a quick resolution of the situation is unlikely over the next few months, which carries the risk that Qatar’s sovereign credit fundamentals could be negatively affected.

The four countries calling to fight terrorism have enacted a series of measures such as severing diplomatic relations, closing land, sea and air links, and expelling Qatari nationals from their countries. In addition, they have submitted a list of 13 demands as condition for removing these actions.

While Qatar’s hydrocarbon exports are not affected at this stage, there have been reports of disruptions to certain non-hydrocarbon exports and a forced shutdown of helium production.

Moody’s thinks that a prolonged period of uncertainty will negatively affect business and foreign investor sentiment and could also weigh on the government’s long-term diversification plans to position the country as a hub for air traffic, tourism, medical services, education, and sports through a higher risk perception among foreign investors.

Weaker economic activity could also lead to deteriorating asset quality in the banking system and together with an escalation involving sanctions against the financial sector could necessitate a step-up in government liquidity support.

In addition to rising global interest rates, funding costs for the government and other Qatari-based issuers will increase further and the government’s balance sheet would deteriorate quicker in a scenario of a prolonged stalemate that extends well into 2018.

Aside from bond and sukuk, Moody’s estimates that total short-term external liabilities amount to more than $115 billion (68% of nominal GDP projected for 2017) of which roughly one third is estimated to be due to creditors in the GCC. Moody’s estimates that about half of this is accounted for by non-resident deposits and rollover risks would increase in a scenario of further financial sector sanctions.