Economic reforms have been 'uneven' across the region, according to a new report from Moody's
Economic reforms unveiled by the countries of the GCC has slowed the fiscal deterioration caused by lower oil prices, although progress has been uneven across the region, according to a report from credit ratings agency Moody’s.
“Lower oil prices since 2014 have significantly weakened GCC sovereigns’ public finances,” the report noted. “The implementation of fiscal consolidation measures and reforms has been uneven across the six GCC sovereigns and has so far been more concentrated on the expenditure side.”
If oil prices remain moderate, Moody’s expects that most GCC sovereigns will continue to run fiscal deficits and accumulate debt.
“While fiscal breakeven oil prices have generally declined since 2014, they have fallen by less than required to balance the government’s budgets unless oil prices rise well above our expected $50-$70/barrel medium-term range,” the report added. “In 2019-20 we expect the largest fiscal deficits in Oman and Kuwait.”
The report noted that reductions in spending have been gradual, reflecting both subsidy cuts and price adjustment mechanisms linked to global crude prices.
“Most GCC countries have recently begun to reverse these cuts, with total government spending across the GCC rising by about 10 percent in 2018,” the report’s author wrote.
Government wage bills – which account for a significant portion of spending – are not expected to decline in the medium-term, while progress on revenue side measures has remained slow and is not anticipated to significant contribute to government intake.
Higher spending, combined with limited non-oil revenue for most GCC sovereigns is expected to place additional upward pressure on interest bills, although some protection is likely to be afforded by fiscal buffers in sovereign wealth funds.