Qatar is Downgraded by Fitch as Blockade Takes a Toll

Confidence in Qatar's creditworthiness took another hit Monday, as Fitch Ratings downgraded the country's debt, citing concerns that the economic blockade imposed by Arab neighbors was unlikely to be lifted soon.

The move is the latest sign of worry from credit ratings firms that a diplomatic dispute between Doha and a Saudi Arabia-led bloc of countries has taken a toll on Qatar's economy, and that the situation could continue to deteriorate.

Fitch lowered the energy-rich Persian Gulf nation's long-term issuer rating by one notch, to AA- from AA, noting that the negotiating positions between Qatar and its adversaries "remain far apart" as international efforts to resolve the diplomatic standoff make little progress.

Saudi Arabia, the United Arab Emirates, Bahrain and Egypt accuse Qatar of promoting extremist groups and meddling in their domestic affairs, charges Doha denies. Qatar's adversaries also issued a list of 13 demands, including shutting down news broadcaster Al Jazeera and curbing ties with Tehran.

Doha has refused to agree to the demands. Last week, tensions rose further when Qatar restored full diplomatic relations with Iran. Majority Shiite Muslim Iran is the Sunni kingdom's main rival for power in the Middle East.

Qatar's policy amounts to "crisis management of burning bridges," U.A.E. minister of state for foreign affairs Anwar Gargash said following that move. "The wisdom we wished for is completely absent."

Fitch and the other leading ratings firms, Moody's Investors Service and Standard & Poor's, worry that the conflict will pressure Doha's finances. Lower credit rates could push up Qatar's borrowing costs.

Monday's downgrade underlines the mounting costs for Qatar since the diplomatic crisis erupted in early June, when the Saudi-led bloc severed diplomatic ties and closed all air, land and sea borders shared with Qatar.

A flurry of diplomatic efforts has failed to break the impasse between the countries--all of which are U.S. allies in the region.

S&P said Sunday that the continuing boycott will slow down Qatar's economy, keeping its AA- rating and negative outlook on the country's long-term prospects despite removing Qatar from negative CreditWatch. Moody's last month lowered its Qatar rating outlook to negative.

Until now, Qatar has weathered the initial impact of the blockade by tapping its vast reserves, accumulated in large part due to the export of natural gas. Doha also sought to establish new sea and air routes through Iran and countries including Oman.

But there are signs of the toll it has taken on Qatar's economy. Food prices have risen and domestic banks have been hit by two successive months of deposit outflows. Fitch said it expects those outflows to continue, but at a slower pace.

For this year, Fitch predicts Qatar's gross domestic product will grow at 2% and at 1.3% in 2018 and 2019, compared with 2.2% in 2016. Tourism and transport are likely to be the worst-hit sectors, it said, estimating Qatar's national airline has lost 10% of its passengers since June.

Write to Nicolas Parasie at

(END) Dow Jones Newswires

August 28, 2017 08:49 ET (12:49 GMT)