Libya gets investment-grade credit rating from S&P
Libya received an investment-grade credit rating Wednesday from Standard & Poor's Ratings Services, the first agency to rate the oil-rich African state that has recently emerged from years of international isolation.
S&P assigned Libya A- long-term and A-2 short-term foreign and local currency ratings, citing the strength of its balance sheet.
The ratings agency assigned the sovereign rating following a request from Libya's government, said David Beers, global head of sovereign ratings at Standard & Poor's, in a phone interview with MarketWatch.
"I think it's fair to say that their motivation to ask for the rating is in keeping with the broader philosophy of recent economic reforms," Beers said. "The rating is useful in terms of helping the country attract more foreign investment."
"Unsurprisingly, the focus of investor interest has been overwhelmingly in the oil and gas sector," Beers said. Other sectors that will likely draw investors are banking and tourism, he said.
Located in North Africa, Libya has the largest proven oil reserves in Africa. A member of the Organization of Petroleum Exporting Countries, it also holds vast reserves of natural gas. Its leader, Moammar Gadhafi, has been in power since 1969.
Until recently, Libya was ostracized by the international community because of the 1988 bombing of a plane over Lockerbie, Scotland. After Libya accepted responsibility for the bombing in 2003, United Nations sanctions were lifted and the African nation began normalizing its relations with the western world.
"From a pure financial and economic standpoint, Libya is highly transparent in relation to a number of its peers in the region," Beers said. "For example, they disclose fully their external financial assets including [their] sovereign wealth fund."
"Given the nature of the political system, which is heavily consensus driven, the decision-making processes are slow and not entirely predictable," he said. "We also highlighted that at some point there will be a change in the leadership. We don't know when. There are inevitably uncertainties there."
Strong balance sheet
S&P assigned a stable outlook on Libya's ratings.
"The ratings on Libya are supported primarily by what we consider is one of the strongest balance sheets among A-rated sovereigns, comprising substantial public assets and negligible debt, relatively low financial contingent liabilities, and the solid medium-term growth prospects of the country's energy sector," said Standard & Poor's credit analyst Ben Faulks in a statement.
The ratings are constrained by "the limited transparency of official decision-making in Libya compared with that in many of its peers" and by uncertainties about the effectiveness of reforms to promote private sector development, Faulks said.
"We believe Libya's economic structure is not as developed as most peers with, for example, the banking sector in the early stages of modernization," he said.
S&P expects the sharp fall in oil prices and OPEC-driven cuts in production to cause a significant contraction of Libya's real and nominal gross domestic product this year.
However, due to its strong balance sheet, Libya is well-equipped to confront likely fiscal and current account deficits and to moderate what could otherwise be a significant shock to the economy, S&P said.
The country's medium-term growth prospects are "promising," and international oil companies have demonstrated great interest in Libya, attracted by low production costs and the fact that some 75% of the country remains unexplored, the agency said. Infrastructure is underdeveloped following years of international isolation.
"The main constraint on the ratings on Libya is our belief that decision-making is more centralized and the political process more complex than in many A-rated peers, leading to less predictability in policy-making," S&P said.
S&P assigned Libya A- long-term and A-2 short-term foreign and local currency ratings, citing the strength of its balance sheet.
The ratings agency assigned the sovereign rating following a request from Libya's government, said David Beers, global head of sovereign ratings at Standard & Poor's, in a phone interview with MarketWatch.
"I think it's fair to say that their motivation to ask for the rating is in keeping with the broader philosophy of recent economic reforms," Beers said. "The rating is useful in terms of helping the country attract more foreign investment."
"Unsurprisingly, the focus of investor interest has been overwhelmingly in the oil and gas sector," Beers said. Other sectors that will likely draw investors are banking and tourism, he said.
Located in North Africa, Libya has the largest proven oil reserves in Africa. A member of the Organization of Petroleum Exporting Countries, it also holds vast reserves of natural gas. Its leader, Moammar Gadhafi, has been in power since 1969.
Until recently, Libya was ostracized by the international community because of the 1988 bombing of a plane over Lockerbie, Scotland. After Libya accepted responsibility for the bombing in 2003, United Nations sanctions were lifted and the African nation began normalizing its relations with the western world.
"From a pure financial and economic standpoint, Libya is highly transparent in relation to a number of its peers in the region," Beers said. "For example, they disclose fully their external financial assets including [their] sovereign wealth fund."
"Given the nature of the political system, which is heavily consensus driven, the decision-making processes are slow and not entirely predictable," he said. "We also highlighted that at some point there will be a change in the leadership. We don't know when. There are inevitably uncertainties there."
Strong balance sheet
S&P assigned a stable outlook on Libya's ratings.
"The ratings on Libya are supported primarily by what we consider is one of the strongest balance sheets among A-rated sovereigns, comprising substantial public assets and negligible debt, relatively low financial contingent liabilities, and the solid medium-term growth prospects of the country's energy sector," said Standard & Poor's credit analyst Ben Faulks in a statement.
The ratings are constrained by "the limited transparency of official decision-making in Libya compared with that in many of its peers" and by uncertainties about the effectiveness of reforms to promote private sector development, Faulks said.
"We believe Libya's economic structure is not as developed as most peers with, for example, the banking sector in the early stages of modernization," he said.
S&P expects the sharp fall in oil prices and OPEC-driven cuts in production to cause a significant contraction of Libya's real and nominal gross domestic product this year.
However, due to its strong balance sheet, Libya is well-equipped to confront likely fiscal and current account deficits and to moderate what could otherwise be a significant shock to the economy, S&P said.
The country's medium-term growth prospects are "promising," and international oil companies have demonstrated great interest in Libya, attracted by low production costs and the fact that some 75% of the country remains unexplored, the agency said. Infrastructure is underdeveloped following years of international isolation.
"The main constraint on the ratings on Libya is our belief that decision-making is more centralized and the political process more complex than in many A-rated peers, leading to less predictability in policy-making," S&P said.
