Dubai – “ASWAQ”
The oil-exporting Gulf Cooperation Council (GCC) countries are set to witness slow growth and increase in budget deficits in 2016, according to rating agency, Moody’s Investors Service (Moody’s).
Moody’s said the GCC’s fiscal deficit could reach close to 12.5 percent of regional GDP in 2016, up from 9 percent in 2015. Saudi Arabia, Bahrain and Oman are expected to deteriorate faster than the UAE, Qatar and Kuwait, where their fiscal reserve buffers are sufficient to mitigate the short-term negative impact of the lower oil prices.
Moody’s estimated that the savings from increased fuel prices and value-added tax will average 2.5 percent of GDP across the GCC countries, which falls short of addressing fiscal challenges.
Mathias Angonin, an analyst at Moody’s said, “GCC governments have started to cut costs and introduce new revenue-enhancing measures. Lower public spending is likely to weigh on economic growth in 2016, although we expect it to remain positive as oil production is sustained and expenditure cuts are implemented only gradually. However, lower oil prices will also affect GCC public finances, eroding their fiscal reserve buffers and increasing debt levels.”
Moody’s reported that funding of these deficits will lead to a rise in government debt and a decline in government financial assets. Moving forward, the deficit funding mix will change, with governments increasing their recourse to external debt.
The biggest increases are projected to be in Bahrain and Oman, where government debt-to-GDP could increase by 35 and 18 percent in 2016 from their 2014 levels, followed by Saudi Arabia, which will see its government debt ratio increase by at least 15 percent. Other GCC countries’ debt are expected to increase 11-13 percent of GDP. The medium-term reforms are crucial in relieving pressure on government balance sheets, and will determine GCC sovereigns’ fiscal trajectory.
Moody’s projections are based on oil price assumptions which were revised downwards at the beginning of 2016 to US$33 per barrel in 2016, and US$38 in 2017 amid higher-than-expected supply from the US, Iran and Iraq.