Moody's cuts Saudi, Oman, Bahrain debt ratings

DUBAI (Reuters) - Moody's Investors Service cut its debt
ratings for Saudi Arabia, Oman and Bahrain on Saturday
while assigning negative outlooks to three neighboring
states, as low oil prices continue to undermine government
finances in the region.
The rating agency downgraded Saudi Arabia's long-term
issuer rating by one notch to A1 but gave the kingdom a
stable outlook, saying sweeping economic reforms
announced by the government last month might stabilize
the state budget.
In late April, Deputy Crown Prince Mohammed bin Salman
revealed Saudi Arabia's biggest policy shake-up in
decades, including tax rises, an efficiency drive and plans
to give a bigger role to the private sector.
"The government has ambitious and comprehensive plans
to diversify both the economy and its balance sheet which,
if even partly successful, should stabilize its credit profile
and which could, if achieved, offer a route back to a higher
rating level over time," Moody's said.
However, the agency said it was still uncertain how Saudi
Arabia would fund a massive budget deficit averaging 9.5
percent of gross domestic product between 2016 and 2020,
which would require total financing of $324 billion.

"It is not yet clear how this cumulative financing need will
be met: while Saudi Arabia's low levels of government debt
at 5.8 percent of GDP in 2015 provide fiscal space, no
medium-term funding strategy has yet been announced,"
Moody's said.
The agency downgraded Oman by one notch to Baa1 with a
stable outlook, and cut Bahrain by one notch to Ba2, deeper
in junk territory, with a negative outlook. Both countries
lack the huge financial and oil reserves of their wealthy
neighbors.
While Bahrain can expect support from its ally Saudi Arabia
in a crisis, it is likely to find it increasingly hard to borrow
in the international markets, particularly since it will be
competing for money with its neighbors, Moody's said.
"The further deterioration in the government's balance
sheet, combined with increased external debt issuance
from other countries in the region, will lower the supply of
external funding, thereby heightening the risk that finance is
obtainable only at much less affordable rates for Bahrain,
or potentially reduced amounts."
Moody's also confirmed the Aa2 ratings of the United Arab
Emirates and its biggest member, Abu Dhabi, but assigned
a negative outlook to them.
The UAE has been more proactive than its neighbors in
restraining spending and reforming its finances in an
environment of low oil prices, but Moody's said the
government's policies to cut its budget deficit were still not
clear.
Moody confirmed the Aa2 ratings of Kuwait and Qatar but
gave both of them a negative outlook.