Oil price slump narrows MENA sovereign credit divergence

The divergence between the ratings of energy exporters and importers in the Middle East and North Africa (MENA) is narrowing due to lower oil prices, while geopolitical risks remain high in the region, global rating agency Fitch said in a latest report.

"Lower oil prices have changed the economic environment for the region's exporters," it said. "They will reduce fiscal and external outturns and hit corporate and consumer confidence."

Fitch expects Brent crude to average at 70 U.S. dollars per barrel in 2015 and 80 dollars a barrel in 2016. Brent crude for April delivery on Wednesday declined 2 dollars to close at 60.53 dollars a barrel.

Capacity to absorb lower oil prices varies in line with ratings. Bahrain seems to be the most fiscally strained, with a 2014 fiscal breakeven oil price of 130 dollars per barrel and its debt to gross domestic product (GDP) ratio already above the peer median, and was placed on a Negative Outlook in December.

Oman also requires more than 100 dollars per barrel to balance its budget, but has sovereign wealth fund assets and a low debt burden, the report said.

Oil importers are benefiting from lower prices through reduced import expenditures and lower fuel subsidy costs. Jordan stands to gain the most, with net fuel imports of 16 percent of its GDP and fuel subsidies of around 8 percent of GDP.

Egypt, although a small net importer, spent around 6 percent of GDP on fuel subsidies in its 2014 fiscal year, it said.

Fitch views geopolitical risks as being elevated in the region. The Islamic State (IS) activities pose risks to several MENA countries. The potential for worsening spillover from events in Syria is reflected in the Negative Outlook on Lebanon. Domestic political transitions also remain a source of uncertainty and undermine the environment for economic reform and performance. Endi