According to Moody’s on Wednesday, who reaffirmed a favourable creditworthiness outlook for GCC sovereigns in 2023, the fiscal balances of the UAE and Qatar will continue to be in surplus under an average oil price of $75 per barrel. Despite recent falls, the rating agency stated that a financial windfall from high oil prices will enable most GCC governments to reduce debt loads and reestablish budgetary buffers.
The fiscal breakeven oil price for the UAE in 2022 was predicted by analysts to be $60.4 per barrel. The GCC countries’ 2015–20 balance sheet deterioration would be further reversed, and their ability to withstand future shocks would be improved, according to a report by Moody’s. In a scenario with an average oil price of $75 per barrel, according to Khaleej Times, the rating agency predicted that the fiscal balances in the UAE and Qatar would continue to be in excess, while they would moderately deplete in Kuwait, Oman, and Saudi Arabia. Lower oil prices would result in a much larger fiscal imbalance for Bahrain.
The rating agency noted that the oil demand and drastically slower global economy are the greatest threats to the favourable forecast. The reductions in debt burden and debt affordability indices attained during 2021–22 would start to erode if oil prices fell significantly below $80 per barrel, especially in Oman and Bahrain.
“Higher hydrocarbon revenue will also provide ample financial resources to support economic diversification projects that, if effective, will reduce GCC sovereigns’ heavy economic and fiscal reliance on hydrocarbons and high exposure to longer-term carbon transition risks,” said Alexander Perjessy, vice-president and senior credit officer at Moody’s.
Perjessy said high oil prices would additionally support robust current account surpluses and limit external financing pressures for lower-rated GCC sovereigns. “A deeper-than-expected global slowdown, eroding hydrocarbon demand, and escalation of regional geopolitical tensions are the key sources of downside risk,’’ he said. In its report, Moody’s expects all GCC governments except Bahrain to post surpluses in 2023, as they did in 2022.
In nominal terms, Moody’s estimates the overall spending across GCC sovereigns to rise only by about 1.5%, down from an average annual increase of almost 13% between 2011 and 2014 and about 8% until 2022. Spending will decrease in terms that account for inflation.
The sovereigns with the highest hydrocarbon revenue in relation to GDP will benefit the most from rising oil prices. According to Moody’s, these countries include Kuwait (A1 stable; 42%), Oman (30%), Qatar (28%), and Saudi Arabia (22%). According to a Moody’s analysis, Bahrain and Oman have both made some headway in recent years in reducing their non-hydrocarbon trade deficits by increasing domestic non-oil exports (particularly aluminium for Bahrain and plastics for Oman) and reducing imports.
