Middle East sovereign outlook

Sunday, 28 February 2010

2010 should be a year of improvement for the Middle East as a sluggish global recovery gains momentum and investor confidence rebuilds, according to a report from Moody's.

Moody's only sovereign rating actions in the region so far this year have been positive: the upgrade of Saudi Arabia's government bond ratings to Aa3 from A1 and Oman's to A1 from A2 based on the strong state of their government finances.

Moody's latest report identifies and analyses six key themes that will drive developments in sovereign ratings in the Middle East in 2010: oil price and production levels, the degree of fiscal stimulus, the lending stance of banks, remittance and investment flows from oil exporters to oil importers, demand for non-oil imports in the US and Europe and politics.

"The Middle East had a relatively mild crisis in that it suffered less damage as a result of the global economic and financial turmoil of the past two years than some other regions. This stands it in good stead as the world economy recuperates," said Tristan Cooper, vice president and senior credit officer in Moody's sovereign risk group.

There were, of course, exceptions, said the report. Dubai, with its high debt and open economy, was the main regional casualty (although Moody's does not rate the Dubai government). The private sectors of some other Gulf countries were also bruised as their credit bubbles popped.

"Overall, the Middle East sovereigns did not experience anything like the deterioration in credit metrics that we saw in some other regions in 2009, most notably the advanced industrialised countries and Eastern Europe," said Cooper.

This was mainly due to light reliance on international capital markets for deficit financing, the quick recovery in oil prices and limited external exposure of financial sectors in most countries, said the report.