Fitch: Low Oil Prices Keep Pressure on Major Sovereign Exporters

Low oil prices will continue to weigh on the sovereign credit profiles of major exporters in 2016, Fitch Ratings says. Vulnerability varies but the impact could be felt through negative sovereign rating actions.

Fitch forecasts Brent to average USD55/bbl next year and USD65/bbl in 2017. The impact of the price falls from mid-2014 and changes to our oil price assumptions have been a key driver of sovereign rating actions. In the last 12 months, we have downgraded five sovereigns where oil revenues accounted for a large proportion of general government and/or current external receipts. Another three - Saudi Arabia, Nigeria, and Republic of Congo - were not downgraded but saw Outlook revisions to Negative from Stable.

Rating actions in the last 12 months were consistent with our division of oil exporters into three groups. The downgrade and Outlook revisions came in the most vulnerable and middle groups, while the least vulnerable sovereigns have seen no change to their sovereign ratings or Outlooks.

Sovereign rating implications of lower oil prices reflect two key considerations. One is the starting point, as seen in their fiscal breakeven oil price (where oil revenues balance government spending) and the size of their buffers. These remain key guides to the vulnerability of sovereign balance sheets to falling fiscal and external receipts.

The second is the authorities' policy response. Options include raising oil production, boosting non-oil revenues, expenditure rationalisation, conserving FX and boosting inflows, and exchange rate devaluation.

Not all options are available or appropriate for all sovereigns. Currency devaluation or depreciation can cushion fiscal accounts and the balance of payments, but a sharp FX adjustment might not suit everyone. We do not expect Gulf Cooperation Council exporters to abandon their dollar pegs, for example.

Powered by Capital Market - Live News