Moody's downgraded Qatar's credit rating outlook to negative from stable, as the ratings agency said that a quick resolution to the dispute with its neigbours is unlikely over the next few months.
Several countries, led by Saudi Arabia and the UAE, cut diplomatic ties and began placing economic pressure on Qatar last month. Though Kuwait has stepped up to spearhead negotiations, so far Qatar has refused to agree to several action points to end the standoff.
The ratings agency said that the likelihood of a prolonged period of uncertainty extending into next year has increased, and a “quick resolution of the dispute is unlikely over the next few months, which carries the risk that Qatar’s sovereign credit fundamentals could be negatively affected”.
Qatar still has strength in being the world's largest natural gas (LNG) exporter, helping to contribute to a high level of wealth that will continue to provide significant support to the sovereign credit profile in the short-term,
The ratings agency affirmed the country's long-term issuer and senior unsecured debt ratings at Aa3.
But Moody’s said that while Qatar’s exports have not been affected at this time, there are reports of disruptions to certain non-hydrocarbon exports and a forced shutdown of helium production. The termination of direct flights between Qatar and other GCC-member countries will impact areas such as consulting and tourism. The ratings agency said that this will likely also impact corporation profitability, government-owned or related entities such as Qatar Airways.
Moving into the banking system, with several expected to report earnings next week, weakened economic activity may lead to the financial sector needing government support.
“Absent a swift resolution, economic activity will likely be hampered by the measures imposed so far,” said the ratings agency.