UAE. Political unrest and the resulting economic impact in some countries of the Middle East and North Africa (MENA) are proving detrimental to sovereign credit quality in the region, says Standard & Poor's Ratings Services in two new reports:
•"Credit FAQ: Middle East Unrest's Credit Impact: How We Assess The Political And Economic Risks In Sovereign Ratings," published today; and
•"Report Card: Middle East And North Africa Sovereign Ratings Dip As Political And Fiscal Risks Intensify."
Almost all sovereigns in the region, including wealthy oil-exporting countries, share, to varying degrees, some or many of the political and economic risks that we believe underlie the unrest, the report says.
These include lacking perspective for economic progress for a considerable share of the population and a lack of political representation and restricted civil liberties.
As such, none of the sovereigns in the MENA region are per se immune to contagion from political unrest in the region, although it should be noted that in each individual sovereign rating review we consider the particular characteristics of the case at hand and do not rely on summary assessments, the report says.
"We still consider that, all other factors being equal, high income levels and fiscal reserves, which allow some governments to engage in additional wealth redistribution and social spending, can reduce the likelihood of political unrest emerging," said Standard & Poor's credit analyst Kai Stukenbrock.
"However, the fact that oil-exporting countries, which are considerably wealthier and boast many more fiscal reserves than Tunisia, Egypt, and Jordan, have now also been experiencing political upheaval, puts into perspective the extent to which wealth and fiscal spending can contain such pressure."
Standard & Poor's lowered the ratings on Tunisia (foreign currency BBB/Watch Neg/A-3), Egypt (BB/Watch Neg/B), Jordan (foreign currency BB/Negative/B), Bahrain (A-/Watch Neg/A-2), and Libya (BBB+/Watch Neg/A-2) in the early part of 2011 as a result of our view of heightened political risks in these countries, and our expectation of consequently lower expected economic growth and amplified fiscal pressures.
The ratings on all these sovereigns are currently either on CreditWatch with negative implications (Bahrain, Egypt, Libya, and Tunisia), or have a negative outlook as in the case of Jordan, which all indicate the potential for further downgrades.