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Moody’s Investors Service (Moody’s) has assigned for the first time a A1 long-term issuer rating and a BAA1 Baseline Credit Assessment to Qatar General Electricity & Water Corporation (Kahramaa). The outlook is stable.

The agency revealed in its assessment that the long-term rating of Kahramaa supports the low risks of electricity and water distribution activities, as a government corporation is the owner and the sole operator of the system of transmission and distribution of electricity and water in Qatar, in addition to the strong financial performance of the corporation, Kahramaa said in a statement.

Moody’s expected that the demand for electricity will increase by about 5 percent and water by about 4 percent annually during the next five years, in light of the overall development taking place in the country, with Kahramaa’s ability to fulfill its obligations towards meeting the growing growth in the demand for electricity and water in light of what it implemented electricity network expansion projects in Qatar and the major strategic Water Security Mega Reservoirs Project.

President of the Qatar General Electricity and Water Corporation (Kahramaa) Eng. Essa bin Hilal Al Kuwari said: “This high evaluation reflects the success of Kahramaa’s plans based on financial sustainability. It also confirms the strong financial performance achieved by the Kahramaa, in light of the high rating of the Qatari economy and the support and direction of our wise government, which Moody’s relied upon when Kahramaa was rated.”

He added that Moody’s high rating for the first time for Kahramaa puts us in front of a new commitment, which is to continue to work to enhance financial sustainability and continue to improve operating efficiency and rationalise costs across the organization’s operations by adopting a number of initiatives.

Al Kuwari noted that Kahramaa’s distinguished performance in the financial aspect with the success of the corporation in fulfilling its obligations in providing sustainable and high-quality electricity and water and its role as a key partner in the development projects witnessed by Qatar

Moody’s has also awarded Kahramaa a basic credit rating of ‘baa1’.

The agency also suggested that the internal financial flows of the corporation be sufficient to cover the expected investments during the coming period, which the agency estimated during the next five years to be about QR30bn, noting that Kahrama’s liquidity is sufficient with expected cash.

TUNIS:  Tunisia’s designated prime minister Habib Jemli expects to pull together a new coalition government next week after an election in October produced a fractured parliament.

Since the 2011 revolution that overthrew the autocracy and introduced democratic rule, most economic indicators have weakened and the state has fallen further into debt.

Economists say a strong government with a clear economic vision is essential to continue efforts to stabilise state finances and address the frustrations which threaten to undermine trust in the young democracy’s politics.

HOW BAD ARE THE NUMBERS?

Economic growth, averaging 4.7% in the decade to 2010, has averaged 1.8% since then, World Bank figures show.

The uprising hit Tunisia’s tourism industry and created intense pressure for the new democracy to create public sector jobs, raise pay and increase subsidies.

Tunisia recorded a primary surplus in 2010, with a net deficit of just 1%. Since then, government debt has climbed from 41% of gross domestic product to more than 70%.

The government expects a deficit this year of 3.9% of GDP, down from 7.4% of GDP in 2016, 6% in 2017 and 4.5% last year.

The national current account declined, foreign currency reserves fell, the exchange rate for the dinar dropped and inflation rose to more than 7% in 2017, and was still 6.5% in September.

WHAT IS THE IMPACT ON TUNISIANS?

Unemployment, 12% before the revolution, is now 15% nationally but far worse in Tunisia’s impoverished interior, where it exceeds 30% in some cities.

Tourism was just starting to recover in 2015 when militants killed scores of foreign visitors in two attacks, sending the sector back into collapse.

Visitor numbers only returned to their earlier levels this year but the collapse of Thomas Cook in September showed how vulnerable Tunisia remains to any sudden shock in the sector.

WHAT ARE THE OTHER PROBLEMS?

A sudden surge in hiring by state-owned companies after the revolution contributed to a steep decline in both their performance and profitability. Their losses cost the government $2 billion last year.

The state phosphate company contributed 10% of Tunisian exports before 2011 but only 4% now. It is located in a poor region and the post-revolution government increased its workforce by 21,000 people to 30,000.

Tunis Air, which has 8,000 staff for only 27 planes, has been losing money since the revolution. It said last week it would lay off 400 jobs next year.

However the powerful UGTT union has resisted many such reforms and says other problems such as corruption and mismanagement should be addressed first.

Well-connected private businesses also dominate in some sectors, acting like cartels and leaving smaller businesses unable to raise financing for investment, diplomats say.

WHAT HAS THE STATE TRIED SO FAR?

Tunisia is half way through a $2.8 billion International Monetary Fund (IMF) loan programme, which began in 2016.

The IMF required the government to rein in spending, especially on public sector wages which doubled in cost to about 16 billion dinars ($5.5 billion) in 2018 from 7.6 billion dinars in 2010, and on subsidies.

Its fuel price rises in March were the fifth in a year, and increases are expected to resume.

However the spending cuts, though adding to the public frustrations that led voters to punish coalition partners in October’s election, failed to meet deficit reduction targets.

WHAT NEXT?

The foreign lenders who finance Tunisia’s deficit expect it to deepen its spending cuts – an unpopular and potentially difficult process for the next coalition government.

However, any structural reforms to reduce bureaucracy, improve the performance of government departments and services, and cut corruption would strengthen the business climate and could raise income.

President Kais Saied, an independent elected in October, has already pushed several anti-corruption programmes, something that could help the new government win support for less appealing policies.

In June 2019, we noted that Brexit uncertainty has been a persistent drag on the UK economy since the June 2016 referendum when the UK narrowly voted to “Leave” the EU rather than “Remain” in the EU. In that article we and anticipated that a general election, or second referendum, would be necessary.

The outlook for economic growth is one of the main determinants of the strength of a currency. The British pound (GBP) fell sharply after the 2016 referendum and remains 17 percent below the average of the previous 5 years . This illustrates the market concern about the negative impact of Brexit on the outlook for the UK economy.

Since our last article, Boris Johnson has taken over as the British Prime Minister (PM) and renegotiated the deal with the EU on the Withdrawal Agreement. However, he was unable to push it through the British Parliament by the 31 October deadline. After losing numerous votes in Parliament, PM Johnson was forced to request a further extension of the Brexit deadline to the 31 January 2020.

The hardest form that Brexit could take is often referred to as “No-deal”, whereas remaining in the EU is effectively the softest form of Brexit. PM Johnson’s deal with the EU on the Withdrawal Agreement implies a harder Brexit than most of the options being considered during the summer of 2019.

That alone would imply a weaker outlook for the UK economy and British currency (GBP). However, GBP has rallied 7 percent since early October 2019 when PM Johnson failed to push his deal through Parliament and called a general election to be held on the 12 December 2019. In our view, much of the “No-deal” tail risk was priced out of both FX spot and options markets.

The Conservatives and Labour parties have dominated British politics for many years. However, fractures into “Leave” and “Remain” camps run through both main parties, making future voting patterns less predictable than ever. The main parties have different views for Brexit. So we consider three scenarios.

First, if a Conservative government were to be elected with a workable majority, then Brexit would move forward faster, with PM Johnson’s deal likely to be passed soon after the election.

Second, if a Labour government came to power, then PM Corbyn would attempt to renegotiate a new Withdrawal Agreement. He would then call for a second referendum, which would prolong uncertainty but also open up a path to “Remain”.

Third, the election may result in a hung parliament or weak minority government, barely able to forge a coalition. While this would raise the possibility of a second referendum, it could also bring “No-deal” back on the table and prolong uncertainty.

Back in June, opinion polls suggested that a general election would lead to a hung parliament with Labour as the largest party. However, the most recent opinion polls are indicating a clear majority for the Conservatives. Indeed, the latest prediction by pollster YouGov is that the Conservative party would win 359 seats and deliver PM Johnson a working majority of 68.

PM Johnson’s promise to “Get Brexit Done” is a powerful slogan for the election. However, a trade deal with the EU could not be discussed before a Withdrawal Agreement is implemented and will likely be even more difficult to negotiate. Therefore trade negotiations and Brexit uncertainty are likely to drag on well beyond the December 2020 deadline set by PM Johnson in all three scenarios.