Middle East Country Risk Ratings

UAE

Sovereign risk

Stable. Dubai World and Dubai Holding subsidiaries have agreed with creditors to restructure their debts. However, further unannounced restructurings remain a risk. Aldar Properties, Abu Dhabi’s largest developer, has received financial support from the Abu Dhabi government. Despite debt problems affecting some major corporations, the UAE is comfortably able to meet its debt obligations owing to Abu Dhabi’s vast oil reserves and foreign assets.

Currency risk

Stable. The authorities are committed to maintaining the currency peg. However, the setting up of an International Advisory Council at the Central Bank may presage a review of the peg.

Banking sector risk

Stable. Financial results of some UAE banks for 2010 indicate that provisioning levels have at a slower rate compared with 2009. We expect banks to increase lending in 2011, but there is a downside risk owing to further restructurings by government-related entities.

Political risk

The domestic political scene is stable, but there are concerns that protests in nearby Bahrain could encourage discontent with the UAE.

Economic structure risk

The UAE’s oil earnings and foreign assets will continue to support the economy. However, the construction sector in Dubai remains depressed.

Jordan

Sovereign risk

Stable. The government has not struggled to find buyers for its debt at the domestic banks, and successfully issued a US$750m bond on the international markets in November. But the sovereign risk rating will continue to be undermined by Jordan’s reliance on foreign grants and its wide structural fiscal deficit.

Currency risk

Stable. The dinar will remain pegged to the US dollar. Although the current-account deficit will narrow slightly in2011-12, foreign direct investment will be lower in 2011-15 than in 2006-08, which may put downward pressure on the currency, especially if the regional and domestic political situation worsens.

Banking sector risk

Stable. The Central Bank has tightened financial regulation in recent years, and Jordan’s banks have been left relatively unscathed by the global financial crisis.

Political risk

The lack of representation in parliament and limited progress on political reforms promised after the early 2011protests could increase tensions between government and the opposition, led by the Islamic Action Front. Palestinian participation in government will also be contentious.

Economic structure risk

Jordan has a high level of public debt and relies on inflows of foreign aid and workers’ remittances to finance its fiscal and current-account deficits. It lacks natural resources and depends on imported oil.

Qatar

Sovereign risk

Stable. Qatar has taken on large amounts of debt to finance new gas and petrochemical facilities. However, its substantial foreign assets and revenue inflows from hydrocarbons exports will enable it to meet its debt-service obligations.

Currency risk

Stable. The Qatari riyal will remain pegged to the US dollar, and a revaluation is highly unlikely in 2011-12. The currency is supported by Qatar’s hydrocarbons revenue and foreign assets, but plans to create a Gulf single currency—albeit not within the forecast period—add a little medium-term uncertainty.

Banking sector risk

Stable. The global banking sector is fragile and Qatar is exposed to a weakening property market, which has caused some concern about future non-performing loans. However, government support underpins the Qatari banking sector.

Political risk

The remote possibility of a military confrontation between the US, which maintains its main regional airbase in Qatar, and Iran, with which Qatar has generally good relations, creates risk in an otherwise stable political outlook.

Economic structure risk

Qatar will remain heavily dependent on earnings from hydrocarbons. Oversupply in the liquefied natural gas market is a particular concern. However, the government is making efforts to diversify the economy.