DUBAI • Standard & Poor's (S&P) downgraded Qatar's debt rating on Wednesday as the riyal currency fell to an 11-year low amid signs that portfolio investment funds were flowing out of the country because of Doha's diplomatic rift with other Arab states.
S&P cut its long-term rating of Qatar by one notch to AA- from AA and put the rating on CreditWatch with negative implications, meaning there was a significant chance of a further downgrade.
The rating agency said Qatar's economy would suffer from the decision on Monday of Saudi Arabia, the United Arab Emirates, Egypt and Bahrain to cut diplomatic and transport ties with Doha. They accused it of supporting terrorism, a charge that Qatar denies.
"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," S&P said.
Moody's Investors Service assesses Qatar at Aa3, which is equal to S&P's new rating. Fitch Ratings puts Qatar at AA.
The US dollar was bid as high as 3.6526 riyals in the spot market on Wednesday, its highest level since July 2005, according to Thomson Reuters data. The riyal is pegged at 3.64 to the US dollar by the central bank, which allows only small fluctuations. It was trading at 2.643 against the Singdollar.
Qatar's stock index has tumbled 9.7 per cent over the past three days, with high trading volumes suggesting some Gulf and international investors were bailing out and sending their money home.
Before the crisis, Gulf and international investors held about 9 per cent of Qatar's stock market, which had a capitalisation of US$150 billion (S$207 billion), data shows.
Qatar remains one of the wealthiest countries per capita in the world, with an estimated US$335 billion of assets in its sovereign wealth fund, and its liquefied natural gas exports rake in a trade surplus of US$2.7 billion every month. These exports are expected to continue despite the sanctions.
A Qatari central bank official told Reuters on Tuesday that the country had huge foreign reserves that it could use to support its currency if needed. But, as S&P noted, Qatar's banking system has in recent years become more dependent on loans and deposits from Gulf as well as international banks. Foreign liabilities of Qatari banks soared to 451 billion riyals in March from 310 billion riyals at end-2015, central bank data shows.