Monday 25 March 2019

Higher oil prices ‘won’t impact GCC credit profiles’

DUBAI, April 18, 2018

The GCC countries' creditworthiness will remain driven by government responses to economic, fiscal and external challenges rather than the recent rise in oil prices, said Moody’s in a new report.

"Our expectations for the evolution of sovereign credit profiles have not changed with higher oil prices in recent months," said Thaddeus Best, a Moody's analyst and co-author of the report. "The sovereign ratings and outlooks depend on the ability of GCC sovereigns to address structural vulnerabilities and diversify their economies and fiscal revenue sources away from hydrocarbons."

Key takeaways:

Moody's expects oil prices to remain volatile, ranging between $45-65 per barrel, and forecasts average prices of $60 per barrel in 2018 and 2019 before softening to $55 per barrel.

The recent rise in oil prices will lead to a short-term reduction of pressures on GCC governments' balances sheets by reducing fiscal deficits and slowing the build-up of government debt.

Moody's forecasts that Kuwait and Qatar will post budget surpluses of 5.0 per cent (including investment income) and 2.7 per cent of GDP this year respectively, up from 2.8 per cent and 0.8 per cent under Moody's previous assumption that oil prices would average $55 per barrel.

Conversely, Saudi Arabia, Bahrain and Oman will run large fiscal deficits of 5.8 per cent, 10.2 per cent and 9.4 per cent of GDP respectively, despite the greater tailwind from higher oil prices.

Moody's also forecasts that the UAE will run a small deficit, although at 1.3 per cent of GDP this will be consistent with a broadly stable debt burden.

Moody's expects fiscal strength will continue to erode in Oman, Bahrain and Saudi Arabia, reflecting continued accumulation of government debt.

Conversely, Qatar and Kuwait are likely to experience improvements in their governments' net asset positions, while the UAE's debt metrics should stabilise.

Moody's believes there is a risk that higher oil prices could slow the reform momentum in the GCC countries. Such slowdown would be most credit negative in Bahrain and Oman, where the fiscal challenges are most acute.

Oil at $60 per barrel will reduce gross borrowing requirements across the GCC.

In terms of non-oil revenue generation, Moody’s notes that the UAE and Saudi Arabia have seen the most substantial increases, supported by rises in government fees, and the implementation of 5 per cent VAT in January.

Oman, Bahrain, Qatar and Kuwait have yet to implement VAT. Moody’s estimates that VAT could raise between 0.9 per cent (Qatar) and 1.7 per cent (UAE) of GDP in additional revenue. –TradeArabia News Service

Tags: GCC | oil price | Credit | Moody’s |

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