By Satish Kanady
DOHA: The GCC’s fiscal will reach close to 12.5% of regional GDP in 2016, up from 9% in 2015. The fiscal deterioration is expected to be faster in Saudi Arabia, Bahrain and Oman than in the United Arab Emirates (UAE), Qatar and Kuwait, where reserves cushion the short-term negative impact and allow a more gradual adjustment, said Moody’s Investors Service in a report published yesterday.
Funding of these deficits will lead to a rise in government debt and a decline in government financial assets. The deficit funding mix will change going forward, with governments increasing their recourse to external debt.
The biggest increases will be in Bahrain and Oman, where it projects government debt-to-GDP to rise by 35 and 18 percentage points in 2016 from their 2014 levels, followed by Saudi Arabia, which will see its government debt ratio rise by at least 15 percentage points. For the other three GCC countries it expects increases of 11-13 percentage points of GDP. Lower oil prices will slow growth and increase budget deficits in oil-exporting Gulf Cooperation Council (GCC) countries in 2016, says Moody’s Investors Service in a report published yesterday.
Moody’s report, entitled “Sovereigns-Gulf Cooperation Council: As low oil prices weaken fiscal metrics, credit impact depends on reserves, reforms’, noted:
“GCC governments have started to cut costs and introduce new revenue-enhancing measures. Lower public spending is likely to weigh on economic growth in 2016, although we expect it to remain positives as oil production is sustained and expenditure cuts are implemented only gradually”, said Mathias Angonin, an analysts at Moody’s.
“However, lower oil prices will also affect GCC public finances, eroding their fiscal reserve buffers and increasing debt levels.”
Moody’s notes that medium-term reforms are key to relieving pressure on government balance sheets and will determine GCC sovereigns’ fiscal trajectory. It estimates that the savings from the increased fuel prices and value-added tax will average 2.5 percent of GDP across GCC countries, which falls short of addressing fiscal challenges.
Moody’s oil price assumptions were revised downwards at the beginning of 2016, $33 per barrel on average in 2016 and $38 in 2017 amid higher-than-expected supply from the US and, going forward, Iran and Iraq.
Meanwhile, quoting a senior official of Moody’s, Bloomberg reported Banks in the Gulf Cooperation Council are seeking deposits from other countries in the region and beyond as oil’s decline to near a 12-year low cuts cash holdings.
The strong credit ratings of the biggest banks from the United Arab Emirates, Qatar and Kuwait are helping attract funds from the US and Europe to help compensate for the decline in government deposits, Khalid Ferdous Howladar, Moody’s senior credit officer, said at a conference in Dubai on Monday.
“Liquidity, this is really the major story for the banks,” Howladar said. “So now we are seeing the emergence of a pan-GCC pool of liquidity and the banks will have to bid for these large corporate” deposits. Previously, each country’s market was quite segregated, he said.
The decline in government deposits will push banks to increasingly rely on the bond market for money and its share in banks’ funding will rise by 5 percentage points to 15 percent, Howladar said. The Peninsula
