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DOHA: While fuel subsidy reforms in members of the Gulf Cooperation Council (GCC) will help address pressure from low oil prices on public finances, these measures alone will not be enough to bring the governments’ budgets back into surplus, said Moody’s Investors Service in a report published yesterday.
“Recent moves to reforms subsidies signal political willingness to address the damaging effect of low oil prices on budgets. However, they fall short of the scale of economic and fiscal reform required to achieve budget balance,” said Mathias Angonin, an analyst at Moody’s.
“While the GCC governments’ balance sheets remain solid on a consolidated basis, we anticipate a sharp deterioration in the governments’ net asset position as a consequence of the decline in oil prices.”
According to the rating agency, the GCC’s savings from increased fuel prices will likely be small - an average of 0.5 percent of GDP across GCC countries in 2016. Even if governments opt to link fuel price hikes to global oil prices, the gains would be much lower than the expected fiscal deficit of 12.4 percent across the GCC.
This is based on Moody’s forecast of oil prices remaining at around $33 per barrel in 2016, having fallen by 67 percent from 2014 levels and 32 percent from 2015 levels.
However, the price hikes will also lead to efficiency gains, reducing distortions caused by artificially low prices, says the rating agency, noting that domestic oil consumption has been growing at an average of 6.7 percent annually over the last five years in Kuwait, Qatar, Saudi Arabia and the UAE. In addition, Moody’s notes that GCC governments are looking to cut other current spending and, in the medium term, increasing revenue streams.
The Peninsula
