Moody’s puts Oman’s deficit at 15.1 pc of GDP in 2016

August 23: Amid the prevailing oil crisis, the Sultanate is likely to see a deficit of 15.1 per cent of GDP this year, according to a Moody’s Investors Service report on the outlook for GCC countries.

The global rating agency noted in its report titled “Sovereigns — GCC: Implications of Recent Oil Price Fluctuations — that the GCC countries, in particular, Qatar, Kuwait and Oman, are set to be the main beneficiaries of higher oil prices in the short term, given the larger reliance on oil for government revenues.

Kuwait and Qatar are expected to see a deficit of 3.0 per cent and 5.5 per cent respectively.

“Credit profiles will remain under stress despite prospects of somewhat higher oil prices in the near term than expected earlier this year,” the agency pointed out.

Moody’s expects oil prices to remain low, moving within a $40-$60 per barrel range over the medium term. In June, Moody’s raised its nearer term oil price estimates for Brent crude to $40 per barrel in 2016 and $45 in 2017.

According to Dyck, a senior credit officer at Moody’s, GCC sovereigns will continue to rely on debt issuance, drawdowns of fiscal reserves or a combination of both to finance the fiscal deficits. This will result in a sustained deterioration of their net asset positions over the near term.

“While we have revised upwards our near-term estimated prices for oil, our medium-term expectation of ‘ lower for longer’ oil prices remain unchanged. We, therefore, expect GCC countries to continue to face economic, fiscal and external challenges,” he said Qatar, Kuwait and the UAE are the most strongly positioned GCC sovereigns in terms of both the size of their financial assets compared with the government spending and low fiscal break-even oil prices, while Saudi Arabia, Oman and Bahrain have higher fiscal breakeven oil price along with much lower financial assets on which to draw, which contributes to the ratings gap.

“We project fiscal gains of around 4-5 per cent of GDP for Qatar and 3.5-4.5 per cent of GDP for Oman, and smaller but sizeable gains of 1.5-3 per cent of GDP for Saudi Arabia, the UAE and Bahrain over 2016-17,” Moodys said.

On the debt issuance, the report noted sovereign and non-sovereign bond and sukuk issuance in the GCC reached a record $33.8bn in the first half of 2016 compared with $22.6bn for the full year 2015.

The sharp increase is driven by higher government issuances to finance large fiscal deficits in 2016. In 2015, GCC countries primarily drew on foreign exchange reserves and government deposits in the banking system to finance fiscal and current account deficits. However, Moody’s sees the funding mix shift more towards debt issuances this year.

“Thus far in 2016, Qatar, Abu Dhabi, Oman and Bahrain have issued international bonds or sukuks totalling $17.1 billion,” the report added.

Other countries looking to issue these in the second half of 2016 include Qatar, Kuwait and Saudi Arabia, with the latter reportedly preparing a large issuance of up to $15 billion divided into 10-year and 30-year tranches.