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12 January 2020

GCC sovereigns’ fiscal reforms progress to remain slow

Lower oil revenue available to fund government spending will constrain growth in the non-oil sector which is expected to deter GCC countries from undertaking more fiscal tightening.

Moody’s expects a further gradual erosion in GCC credit metrics as oil prices remain moderate over the medium-term/iStock

by Kudakwashe Muzoriwa

Moody’s said that GCC sovereigns’ 2020 outlook is negative due to slow fiscal reform progress, weak growth, and higher geopolitical risk.

The pace of fiscal consolidation in 2020 is expected to be slow and most GCC countries have no significant new measures lined up as the focus on social stability and diversification increases.

Oman's downgrade in March 2019, following five downgrades since 2015, reflects Moody’s expectation that the scope for fiscal consolidation in the Sultanate would remain significantly constrained by the government's economic and social stability objectives.

Additionally, Moody’s said that the negative outlook change for Sharjah (A3 negative) in July 2019 was driven by the government's deteriorating fiscal position, which, in the absence of significant new fiscal consolidation measures, would point to credit metrics consistent with a lower rating.

Alexander Perjessy, a Moody’s Vice President - Senior Analyst, said, “The pace of fiscal consolidation will remain slow in the GCC in 2020 and fiscal strength will continue to erode in the absence of significant new fiscal measures and reforms.”

Moody’s expects a further gradual erosion in GCC credit metrics as oil prices remain moderate over the medium-term.

The Gulf region’s geopolitical risks are higher and broader in nature than in the past amid ongoing tensions between the US and Iran. The recent US strike that killed Iraqi and Iranian officials marked a significant escalation of tensions in the region.

Moody’s adjusted its assessment of Saudi Arabia’s (A1 stable) political risk upwards following the attacks on Saudi Aramco oil facilities in September 2019, which highlights the Kingdom’s heightened exposure to geopolitical risk.

However, Moody’s said that the UAE and Saudi Arabia, Kuwait and Qatar have ample foreign-currency and government asset cushions to tide them over from temporary disruption to oil production and exports.

The UAE and Qatar’s liquid foreign-currency buffers are estimated to be around 100 per cent of GDP, in Kuwait, liquid foreign-currency buffers are estimated to be more than 200 per cent and more than 60 per cent in Saudi Arabia.

RELATED STORIES: fiscal reforms GCC sovereigns geopolitics Saudi Aramco





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