Fitch downgrades Qatar’s sovereign rating

Rating agencies are concerned about the country’s ability to withstand prolonged sanctions

Fitch Ratings downgraded Qatar’s sovereign ratings on Monday, citing concerns of adverse impact on the economy from the economic sanctions imposed by Arab nations led by Saudi Arabia, the UAE and Bahrain.

The rating agency lowered Qatar’s sovereign rating by one notch to AA-minus with a negative outlook.

Fitch along with other leading agencies expect the lack of progress in ending the economic and diplomatic embargo on Qatar will impair the long term economic prospects of the country, report Gulf News’ Banking Editor.

“International mediation efforts are still ongoing but are not showing significant progress. In our view, the negotiating positions of Qatar and the boycotting countries remain far apart,” Fitch analysts Krisjanis Krustins and Jan Friederich said in a statement.

Fitch’s rating action comes a day after Standard & Poor’s affirmed the negative outlook on Qatar’s credit rating. S&P was the first to lower its long-term rating on the State of Qatar to AA- from AA and placed the rating on credit watch with negative implications.

In its latest update, S&P affirmed the negative outlook and has hinted that it could potentially lower the ratings if the economic boycott is tightened and or prolonged.

“The negative outlook reflects our view of the potential consequences of the boycott on Qatar’s economic, fiscal, and external metrics, especially if the boycott is tightened or prolonged, said Benjamin Young, a credit analyst with Standard & Poor’s.

Fitch analysts said that the pace of the pace of fiscal consolidation in Qatar will slow as the government bears some of the increased cost of imports and postpones certain non-oil revenue measures in a bid to support economic activity.

Analysts say the probability of further decline in capital spending as a result of the economic embargo and persistent decline in oil prices has increased. Qatar had shrunk its capital spending plans for 2014-2024 to $130 billion from $180 billion in response to low oil and gas prices.

Fitch predicted Qatar’s economic growth would slow to 2 per cent in 2017 and 1.3 per cent next year compare to 2.2 per cent in 2016.

According to Fitch, the Saudi-led economic sanctions are expected to hurt Qatar’s tourism and transport sectors in particular, with the agency estimating Qatar Airways had lost about 10 per cent of its passenger flow.

Many analysts now expect the crisis from the sanctions to linger into 2018 as the chances of a mediated settlement have diminished.

According to rating agency Moody’s, the likelihood of a prolonged period of uncertainty extending into 2018 has increased, which carries the risk that Qatar’s sovereign credit fundamentals could deteriorate further impacting overall investor risk appetite cost of funding.

The rating agency has noted that depending on the duration and potential further escalation of tensions, the dispute could negatively affect Qatar’s economic and fiscal strength.

“Absent a swift resolution, economic activity will likely be hampered by the measures imposed so far. The termination of direct flights between Qatar and coalition countries will affect services trade in areas like consulting and tourism. This will likely also affect the profitability of corporates, including government-owned or government-related entities such as Qatar Airways,” Steffen Dyck, Senior Credit Officer, Sovereign Risk Group of Moody’s.

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