"Fitch" Excludes the Gulf States Change of Their Peg to the Dollar

  • GCC Countries
  • 24 July 2020

Fitch Ratings excluded the exchange rate policy for the Gulf countries and Jordan in the medium term, with the currency peg in Iraq enjoying a degree of flexibility.

According to the agency, the continued linking of currencies of countries with low ratings during the coming period will require financial adjustments, which is already going on the ground in varying degrees, indicating that defending the currency pegs will commit to a large depletion of foreign assets or the accumulation of debts, stating that the flexibility of linking currencies will depend on financial adjustment reforms.

The agency indicated in a report that the collapse of oil prices and the Corona epidemic opened a two-digit deficit in the financial account and the current account in most of the Gulf countries. With its structural economic constraints and its ability to defend currency pegging alone as is the case in Kuwait, the Emirates, Qatar and Saudi Arabia, or with potential external support as is the case in Bahrain, and Oman, which has received limited support so far.

The agency indicated, that the devaluation of the currency will result in few competitive benefits for the Gulf countries or Iraq, in view of the diverse nature of their economies, but in return, this leads to financial and external adjustment by eroding the real value of government spending and the income and wealth of the population, leaving the true value of oil revenues without change.

Source (Al-Rai newspaper-Kuwait, Edited)