S&P has become the first ratings agency to downgrade Qatar amid intense diplomatic row

Rebecca Smith
S&P said it expects economic growth to slow
S&P said it expects economic growth to slow (Source: Getty)

Standard & Poor (S&P) has become the first ratings agency to downgrade Qatar's credit rating following the diplomatic rift caused by the decision of Saudi Arabia, the United Arab Emirates, Egypt and Bahrain to cut ties with Qatar.

They were followed by Yemen, Libya, and the Maldives.

S&P cut its long-term rating of Qatar by a notch, to AA- from AA, and put the country on negative credit watch, suggesting there was a likely chance of a further downgrade.

Read more: Saudi Arabia has now revoked Qatar Airways' licence

The ratings agency has said Qatar's economy could be severely hit by the decision announced earlier this week by a raft of countries to cut diplomatic and transport ties with Qatar. They accused it of supporting terrorism, which Qatar has vehemently denied.

While oil-rich, Qatar gets a substantial amount of food through its land border with Saudi Arabia, which has been closed. Transport has already been significantly disrupted with many airlines suspending flights to and from Doha, while Qatar's national airline Qatar Airways, is having to take detours meaning flights take longer, having been banned from large portions of airspace.

Analysts at S&P said a lengthy dispute could have a knock-on effect on the economy if trade falls and foreign investors withdraw assets.

They said Qatar's fiscal and current account deficits could widen as "related revenues from regional trade diminish". In 2016, 10 per cent of Qatar's exports went to the group of states that have blocked trade.

S&P added that the air travel restrictions could have "significant implications" for Qatar Airways' profitability.

"We expect that economic growth will slow, not just through reduced regional trade, but as corporate profitability is damaged because regional demand is cut off, investment is hampered, and investment confidence wanes," it said.

Last month, Moody's downgraded Qatar's long-term and sovereign ratings to Aa3 from Aa2, pointing to rising external debt and uncertainty over the sustainability of the country's growth model over the coming years. Fitch Ratings has Qatar at AA.

Read more: Terrorism fears cause United Arab Emirates to sever ties with Qatar

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