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May 22, 2013

Middle East countries which are energy exporters have better investment ratings than  oil importers in the region, Fitch says, and that gap is widening.

Paul Gamble, director in the sovereigns group at Fitch, told a briefing this week that the ratings gap has never been bigger and that:

If you look at the outlooks, it has the potential to widen further.

The energy exporters – Bahrain, Kuwait, Saudi Arabia, Abu Dhabi and Ras Al-Khaimah — all are rated investment grade by Fitch. Saudi Arabi’s rating has a positive outlook while the others have at least a stable outlook.  Of the energy importers, meanwhile, two are on negative outlook – Egypt and Tunisia – while Morocco, Israel and Lebanon are stable. Only Israel and Morocco are investment grade.

Many of these countries may be too dependent on their energy sectors. But most energy exporters have based their budget calculations on a low price for oil, giving them room for manoeuvre if oil prices do fall, Gamble says:

The buffers are huge …budgets (are) based on unrealistically low oil prices

So despite a huge social spending boost following the Arab Spring uprisings, most Gulf oil powers can still boast healthy surpluses — the Saudi surplus this year is estimated at over 7 percent while Kuwait’s will be a whopping 20 percent for the financial year that started in April, analysts polled by Reuters predict.

Bahrain has been more optimistic on the oil price, however, with a budget based on oil at $120 a barrel, Gamble said – oil is currently trading around $104.

Fitch is due to review Bahrain in the next couple of months, after affirming the country’s ratings last July. Gamble pointed out, however, that the country’s BBB rating was already the lowest among its energy-exporting peers.

Israel started producing gas this year but Gamble said the country would not gain fiscal revenues from production until 2016, while the country is not likely to start exporting before 2017, beyond the rating agency’s forecasting horizon.




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