Gulf sub­sidy re­forms not to plug deficit: Moody's

The Pak Banker - - COMPANIES/BOSS -

Fuel sub­sidy re­forms by Gulf states will help re­duce pres­sure on bud­gets but are not enough to off­set deficits re­sult­ing from low oil prices, rat­ings agency Moody's said Wed­nes­day.

Sav­ings from in­creased fuel prices in the six Gulf na­tions will av­er­age 0.5 per­cent of gross do­mes­tic prod­uct (GDP) -- around $7 bil­lion -this year against an es­ti­mated deficit of 12.4 per­cent of GDP, it said.

"Re­cent moves to re­form sub­si­dies sig­nal political will­ing­ness to ad­dress the dam­ag­ing ef­fect of low oil prices on bud­gets," said Moody's an­a­lyst Mathias An­go­nin. "How­ever, they fall short of the scale of eco­nomic and fis­cal re­form re­quired to achieve bud­get bal­ance," he said. All the six Gulf Co­op­er­a­tion Coun­cil (GCC) states, which de­pend heav­ily on oil in­come, have re­duced gen­er­ous fuel, elec­tric­ity and other sub­si­dies to cut spend­ing in the face of fall­ing rev­enues. The GCC groups en­ergy-rich Bahrain, Kuwait, Oman, Qatar, Saudi Ara­bia and the United Arab Emi­rates. All of them posted a bud­get deficit last year.

Moody's fore­cast that the price of oil will av­er­age $33 a bar­rel in 2016, way below its price of around $110 a bar­rel be­fore it be­gan to de­cline in mid-2014. It es­ti­mated the price to be $38 a bar­rel next year.

"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," Moody's said. The re­forms will how­ever lead to ef­fi­ciency gains, re­duce dis­tor­tions caused by very low prices and cut do­mes­tic en­ergy con­sump­tion, it said.

Moody's ex­pects GCC states to take other fis­cal mea­sures such as rais­ing cor­po­rate taxes and in­tro­duc­ing value-added taxes in the face of a long pe­riod of low oil rev­enues.

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