JEDDAH — The consequences of the sharp fall in oil prices are clearly visible in Gulf Cooperation Council (GCC) sovereigns› fiscal and external accounts, &P Global Ratings said in its report titled “GCC Sovereigns› Financing Needs In 2015-2019 Could Total $560 Billion.”
The region›s funding requirement has been mounting since 2015, when the drop in oil-related revenue turned fiscal surpluses into deficits, although these differ among the sovereigns in scale and duration. “We estimate that, in nominal terms, GCC sovereigns› combined fiscal deficit will reach $150 billion (12.8% of combined GDP) in 2016 alone.”
As a proportion of GDP, “we expect that in 2016-2019 these deficits will average around 10% per year in Bahrain, Oman, Kuwait, and Saudi Arabia, and 4% on average in Abu Dhabi and Qatar. In our view, GCC sovereigns› financing needs will likely remain substantial over the next several years, given the region›s almost uniform dependence on hydrocarbons.”
“We forecast that the cumulative funding requirement could be as high as $560 billion between 2015 and 2019. The resulting imbalances and their likely impact have been central to our view of a significant deterioration in the region›s creditworthiness over the past 18 months. Although most governments› balance sheets remain a rating strength, the related assets are finite.
Furthermore, international liquidity sources could start to dry up at a time when foreign inflows are most needed and the liquidity of domestic banking systems is diminishing. This creates uncertainty about how, and at what price, GCC sovereigns will cover their fiscal deficits, the report noted.
The fiscal deficits of these economies, as a proportion of GDP, will average roughly ten percent per year in Bahrain, Oman, Kuwait and Saudi Arabia, and four percent on average in Abu Dhabi and Qatar during the period from 2016 and 2019.
Nonetheless, GCC governments, except Oman and Bahrain, still have substantial reserves at their disposal.
S&P expects that Bahrain’s net debt will have increased almost six-fold between 2014 and 2019, while Oman’s net asset position will likely decline to zero and Saudi Arabia’s by 30 percent over the same period.
For Abu Dhabi, Kuwait, and Qatar, the impact of deficits will be more muted because of smaller deficits and greater asset stocks, highlighting a fiscal bifurcation of the region.
“The resulting imbalances and their likely impact have been central to our view of a significant deterioration in the region’s creditworthiness over the past 18 months. Although most governments’ balance sheets remain a rating strength, the related assets are finite,” said Benjamin J Young, credit analyst at S&P.
“Furthermore, international liquidity sources could start to dry up at a time when foreign inflows are most needed and the liquidity of domestic banking systems is diminishing. This creates uncertainty about how, and at what price, GCC sovereigns will cover their fiscal deficits,” he added.
