Fiscal tightening in GCC as oil prices decline
Consolidation expected to strengthen government finances
Business Editor
Strong fiscal responses by some of the GCC sovereigns are expected to preserve their financial and credit strength as oil price is likely to remain low for long, according to rating agency Moody’s. The rating agency recently revised down its average oil price assumptions to $35/ barrel in 2020 and $45/barrel in 2021, and as a result, expect a very large drop in fiscal revenues for all GCC sovereigns.
Offsetting losses
While GCC sovereigns have provided some targeted support to buffer their economies against the coronavirus shock, Moody’s said most have enacted consolidation measures that significantly exceed the cost of fiscal stimulus with the aim of offsetting expected revenue losses.
“Large fiscal adjustments planned by Abu Dhabi and Saudi Arabia will likely allow for a preservation of their fiscal strength despite the lower for even longer oil price environment. On the other hand, Oman, Bahrain and Kuwait will likely see a deterioration in their fiscal strength, although Kuwait’s very large sovereign wealth fund assets potentially provide a significant buffer,”
A vast majority of the measures announced so far have been on the expenditure side, reflecting the shock to the non-oil economy.
said Alexander Perjessy, VPSenior Analyst at Moody’s.
Spending cuts
Over the past three months, GCC governments have announced various measures to offset at least a part of the large revenue losses that Moody’s expect will result this year from the combination of sharply
Large fiscal adjustments planned by Abu Dhabi and Saudi Arabia will likely allow for a preservation of their fiscal strength.”
Alexander Perjessy | VP-Senior Analyst at Moody’s