This is the crux of a report titled “The Gulf Economies Are Going Strong, But Structural Issues Still Weigh On The Sovereign Ratings,” made public on Monday by S&P.
“We rate seven sovereigns in the Gulf Cooperation Council (GCC): Abu Dhabi, Bahrain, Kuwait, Oman, Qatar, Ras Al Khaimah, and Saudi Arabia. All have a stable ratings outlook,” S&P in a statement said.
However, it added, despite the GCC’s relative wealth, and our forecast for 4.6% GDP growth in 2013, structural challenges continue to constrain sovereign ratings.
“There are still particular shortcomings in the effectiveness and predictability of policymaking in the GCC,” Standard & Poor’s credit analyst Dima Jardaneh said. “Weaknesses include the quality of policy debate; the strength and depth of institutions; transparency of decision-making; data monitoring and reliability of information; legal frameworks and the rule of law; and succession risks.”
Under our criteria, the lack of monetary policy flexibility is also a ratings constraint for the GCC, particularly in terms of exchange rate regimes, the credibility of monetary policy, and the effectiveness of the transmission mechanism via the financial system and capital markets.
The report also notes the possibility that oil reserves could peter out in some GCC countries much earlier than in others.
“The oil endowment varies significantly across the GCC,” Jardaneh, said.
“Reserves at the current production levels will last about 90 years in Abu Dhabi and Kuwait, and 70 years in Saudi Arabia, but are considerably lower in Oman and Bahrain where, at current production levels, supplies could run out in the next two decades.”