Four Gulf states have been issued investment grade ratings in the first assessments of GCC states by the leading US rater Moody's Investors Service. Saudi Arabia, Kuwait, Oman and the UAE have all received ratings of Baa3 or above for long-term investments, and a prime rating for short-term issues. However Qatar and Bahrain were given a rating of Ba1, which is short of investment grade. None of the countries was issued a sovereign debt rating.

Moody's has already issued ratings for several other Middle East states. Among those rated are: Israel, which received a rating of A3 on long-term investment, higher than any of the ratings for the Gulf states; Tunisia, which received a Baa3 rating putting it on a par with Saudi Arabia; and Jordan, which received a Ba3 rating, putting it below investment grade and lower than Qatar and Bahrain.

Moody's plans to start comprehensive assessments of banks and financial institutions in the Gulf, and a sovereign rating ceiling is a precondition for this assessment. No institutional rating can exceed the grade set by the sovereign rating. Moody's set up an office in Cyprus in early 1995 to target the Middle East market, although the latest ratings have been issued by the sovereign rating team in New York (MEED 8:9:95).

Kuwait and the UAE topped the ratings, receiving Baal for long-term investments and Prime-2 for short term credit. 'The rating for Kuwait is based on the country's strong current account position, which substantially mitigates the impact of persistent fiscal deficits,' Moody's says. The London-based IBCA has already issued Kuwait with an A rating for long and short-term credit risk (MEED 5:1:96, Kuwait).

Oman's oil reserves are small in comparison with its neighbours, but achieved a higher rating than some other Gulf states because the government has recognised the need for economic adjustment, Moody's says.

Saudi Arabia's rating is 'constrained by the problem of chronic current-account and fiscal deficits, which have persisted for almost 14 years,' the rater says.

Bahrain's position as an offshore banking and services centre has underpinned its rating, but Moody's has also taken into account the country's relatively modest resources and fiscal difficulties. Qatar, like Bahrain fell short of investment grade, mainly because its economy is more susceptible than most neighbouring countries to fluctuations in oil prices, Moody's says.