Fitch says outlook for Gulf oil exporters in 2017 negative

Persistent low oil prices, limited fiscal reform and political risk will maintain economic pressure on region
Fitch says outlook for Gulf oil exporters in 2017 negative
By Staff writer
Thu 01 Dec 2016 12:58 PM

Persistent low oil prices will maintain economic pressure on the oil exporters of the Middle East, which together with limited fiscal reform and political risk, lead to a negative outlook for the region in 2017, according to Fitch Ratings.

The ratings agency said in a statement that with three of the 12 MENA sovereigns on a negative outlook and none are on a positive outlook, the overall outlook is deemed negative.

Fitch aid it expects Brent crude oil prices to average $45 per barrel in 2017, broadly unchanged from $44 in 2016, adding that this is still well below fiscal break-even prices in Saudi Arabia and Bahrain, even though these have decreased since 2015.

Many oil importers in MENA also face considerable fiscal and growth challenges, despite low oil prices, Fitch noted.

The agency said it expects overall growth in the MENA region to slow to 2.2 percent in 2017, from 2.6 percent in 2016, weighed down by Iraq and Kuwait, both of which saw strong oil output growth in 2016 that is not expected to be sustained in 2017.

It added that growth in oil-exporting Gulf countries will generally be subdued, as governments rationalise their spending in an environment of still-low oil prices.

Growth will remain challenging for oil importers, held back variously by domestic and regional political risk, limited structural reforms and spill-over from weaker growth in the GCC, Fitch said.

"In 2017, we forecast the average budget deficit of Fitch-rated GCC sovereigns to narrow but remain large, at 5.2 percent of GDP. GCC countries will finance their fiscal deficits by issuing debt and drawing on their reserves and wealth funds," said the statement.

It added that most Gulf states still have substantial financial buffers, but low oil prices are forcing an agenda of fiscal reform. 2017 will begin to test the resilience of fiscal reform efforts.

"For weaker oil producers, the path of oil prices and the policy response to them will be key drivers of ratings in 2017. Large and persistent gaps between actual and fiscal breakeven oil prices, leading to a rapid erosion of net sovereign assets, would put downward pressure on ratings. Substantial oil price deviation from our baseline forecast could have an impact on ratings, both for oil exporters and oil importers," Fitch noted.

It also said that geopolitical developments have the potential to impact ratings in 2017, while a weaker commitment to fiscal consolidation would put pressure on ratings, particularly for sovereigns with large deficits. Reforms to strengthen the business environment and private sector could lead to positive rating actions.

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