Although policy measures have slowed fiscal deterioration linked to lower oil prices in the GCC, most sovereigns will continue to run fiscal deficits and accumulate debt if prices remain moderate as expected, Moody's Investors Service said.

At the current moderate oil price levels, Moody's expects that the GCC governments will increase spending and delay unpopular austerity measures to preserve high living standards and social stability, implying that fiscal breakevens are unlikely to decline significantly in the near- to medium-term.

"Lower oil prices since 2014 have significantly weakened GCC sovereigns' public finances," said Alexander Perjessy, a Moody's vice president – Senior Analyst and the report's co-author. "The implementation of fiscal consolidation measures and reforms has been uneven across the six GCC sovereigns and has so far been more concentrated on the expenditure side.

"Most GCC countries have recently begun to reverse these cuts, with total government spending across the GCC rising by around 10 per cent in 2018."

Moody's does not anticipate that the governments' wage bills, which account for a significant portion of total spending, will decline significantly in the medium-term. Meanwhile, progress on revenue side measures has been slow and much less material, adding relatively little to government's overall revenue intake.

Only three of the six GCC sovereigns - Saudi Arabia, the UAE and Bahrain - have so far implemented the 5 per cent value-added tax that in 2016 all the GCC countries agreed to implement during 2018.

Higher spending and limited non-oil revenue increases in a moderate oil price environment will see debt burdens continuing to rise for most GCC sovereigns, putting additional upward pressure on interest bills. This will further slow the overall fiscal consolidation momentum.

However, some degree of protection will be afforded for most GCC countries by fiscal buffers accumulated in sovereign wealth funds and by some scope for privatizing government assets.- TradeArabia News Service