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The DB risk indicator is a composite index of four risk categories: political risk, commercial risk, external risk and macroeconomic risk. The DB risk indicator is divided into seven bands, ranging from DB1 through DB7. Each band is subdivided into quartiles (a-d) with an 'a' representing slightly lesser risk than a 'b' designation and so on.
The GCC countries, which were once considered immune to the financial crisis, have finally caught some symptoms of the credit disease. Over the past couple of months, the region has been hit by liquidity crunch much alike other emerging economies of the world.
The general theme going around these days is the falling government revenues due to plummeting oil prices. There have been questions raised about the financing of current projects in the region, which has resulted in rounds of pessimism flowing over the growth prospects of the regional economy in the near term. However, D&B believes the region, with its vast reserves built across record oil prices in the last few years, will be able to stand tall in these testing times.
"The government will step-up its efforts to ensure proper flow of money into the system in order to shun ill effects of the crisis. Meanwhile, there is a brighter side to the current situation in terms of record inflation experienced in the region, which is expected to improve as demand in the economy cools down. With the correction in property prices and subsequent fall in rents, the inflation level will begin to deteriorate. The recent appreciation of the greenback will also help curtail the 'imported inflation' which tends to be a major contributor to the general escalation in the prices of commodities. The strength of the region is reiterated by the ratings given to each of the country, which indicates strong base for the local governments to fight the global financial crisis,"
notes Dheeraj Shahdadpuri, analyst at Dun & Bradstreet.
The D&B Country Risk Indicator has assigned DB2d rating to the region's biggest economy, Saudi Arabia, indicating a solid position to withstand the current global financial crisis. The ratings come in line with the government of Saudi Arabia taking serious actions to boost liquidity in the system by reducing the repurchase rate from 4.0% to 3.0%; together with a reduction in the commercial banks' cash reserve requirements, from 10.0% to 7.0%, aimed at increasing credit availability to meet business demand.
The shortage of liquidity in the financial system has however helped the country in lowering the inflation level slightly to 10.35% in the month of September, down from an annual average of 10.90% for the previous month. D&B has also reduced the inflation forecast for the country from 10.5% in 2008 to 8.5% for 2009, which is expected to give further scope to the Central Bank to use monetary measures to restore liquidity in the system. The Saudi Arabia also remains committed to stabilise the falling oil prices by cutting down its production to 8.49m barrels per day.
D&B has assigned a rating of DB2b to Kuwait, despite the country facing another round of Political turbulence which has heightened uncertainties in light of global economic crisis in the short term. Meanwhile, on the economic front, the central bank stepped up its efforts to increase liquidity by expanding the availability to banks of new repurchase agreements.
The central bank had only been offering one-week repos, but this has now been extended to one-day and one-month repos. The Inflation figure for August reached a record of 11.6% which can be attributed to lowering of interest rates in the past couple of months. However, the inflation is expected to come down to 6.0% for next year from the current 8.5%, with tightening of the credit lines.
Qatar has been assigned a low risk rating of DB2a, further cementing the fact that the increase in LNG exports will more than cover the shortfall in oil revenues for the country as the diversification of the economy has led to oil contributing less than 50% of the total exports. The record inflation levels are expected to ease with outflow of speculative money from the real estate sector, which has on an average boosted the CPI by 23.2% per year between 2003 and 2007.
The recent strengthening of greenback and fall in global commodity prices will help further ease the high inflationary levels in the country. However, with the global financial crisis finally hitting the region, D&B expects slowdown in GDP growth rate but with the ample reserves built over the last few years, the country will still be able to maintain double digit growth rate.
Oman has been assigned a rating of DB2d, indicating the strength of the country to fight financial crisis which has given some scars to the regional economy. The ratings come in tandem with the Omani authorities recently taking action to support the financial system against the backdrop of tightened global credit condition. To ensure sufficient money flow in the system, the government has set up an OR150m 'market-maker' investment fund which will be utilised in buying shares on the local Stock market aimed at reducing volatility and boost investor confidence.
The move is modelled on the experience of Kuwait which has utilised the sovereign wealth funds to intervene in the stock markets. With such measures, the country is expected to continue its economic development plans before the monetary issues force the government to cut down the planned investment outlays.
UAE, which seems to be worst affected by the global economic slump has been assigned a rating of DB2a, citing the power of the government to easily withstand the current economic downturn. There have been concerns about the falling prices of properties in Dubai recently which is expected to result in an outflow of foreign money from the market and will keep new investors at bay for some time. However, D&B expects this as a timely correction which will strengthen the sector in the long term while continuing attracting investors once the world economy stabilises.
Further with the merger of mortgage lender, Amlak and Tamweel, the situation is likely to ease in a couple of months as the money starts flowing back into the sector. Meanwhile Abu Dhabi, which owns majority of the oil reserves, has once again reiterated its position to sustain current expansion plans despite severe downturn in oil prices.
With a stable risk environment, Bahrain has been assigned DB2d ratings on back of positive trade account figures where the country has seen improved figures of BD925m between July and September 2008 as against BD657m earned between April and June 2008.
A large part of the strengthening was attributable to a lower import bill which, on a QoQ basis was down by over 20% due to a slowing domestic demand in the economy.
However, with fall in crude prices D&B has lowered Bahrain's current account surplus in 2008 to 12%, which is expected to further go down to 6% for the next year before recovering to 9% with improvement in oil prices in year 2010. D&B has also lowered the inflation forecast for the country from 5.3% to 3.8% annual average, with lower international food prices which will significantly bring down the import bill of the country.
Posted by Rana Mesbah
