Oman, Qatar to benefit the most from oil price boost in near-term: Moody’s

Muscat – Oman and Qatar are two GCC international locations which might be prone to see essentially the most important enhancements of their fiscal and financial energy due the present oil value increase, based on Moody’s Buyers Service.

In a brand new report launched on Tuesday, Moody’s stated elevated oil costs in the course of the subsequent two years will result in a big enchancment within the fiscal and exterior positions of GCC sovereigns, partly reversing their sharp deterioration of their stability sheets since 2015.

Nonetheless, just a few GCC sovereigns will probably see a cloth credit score impression of upper oil costs within the near-term, the ranking company famous.

It stated, ‘Sovereigns most delicate to grease value fluctuations and with elevated debt burdens may see essentially the most important enhancements of their fiscal and financial energy from the present oil value increase, exerting upward stress on their credit score profiles. Amongst these, Oman and Qatar stand to learn essentially the most.’

In distinction, materials enhancements in credit score metrics will probably be extra modest for many higher-rated GCC sovereigns (Kuwait, Saudi Arabia and Abu Dhabi) which have already very robust stability sheets, Moody’s added.

‘Based mostly on our baseline projections for revenues, fiscal balances and debt burdens, solely Oman and Qatar will doubtlessly see upward stress on their fiscal energy in the course of the subsequent couple of years,’ the ranking company stated.

Moody’s assumes that, in contrast to throughout some previous episodes of elevated or rising oil costs (e.g. 2011-2014 and 2018), GCC governments will largely keep away from one other pro-cyclical fiscal spending increase this time round.

‘In Oman, we assume that the federal government won’t implement extra income measures (resembling a mooted enhance within the VAT tax price or an introduction of a private earnings tax) earlier than 2024, which now appears most probably. Moreover, in each Oman and Qatar we assume that non-interest spending will develop lower than 2 per cent in nominal phrases this 12 months and the subsequent,’ Moody’s stated.

Twin surpluses

The ranking company stated that elevated oil costs and output in 2022-2023 will considerably enhance GCC states’ fiscal and current-account positions. It expects Brent oil costs to common round US$105 per barrel in 2022 and US$95 per barrel in 2023 as geopolitical dangers stemming from Russia’s army invasion of Ukraine outweigh dangers to world oil demand.

‘Consequently, most hydrocarbon-exporting sovereigns will run twin fiscal and current-account surpluses, permitting the governments to pay down money owed, rebuild fiscal reserves and accumulate foreign-currency buffers, thereby lowering authorities liquidity and exterior vulnerability dangers,’ Moody’s stated.

‘In some instances, particularly in Oman and Bahrain, supportive oil costs will even assist to maintain the easing of exterior financing and authorities liquidity pressures that these sovereigns have witnessed since early 2021,’ the ranking company added.

Elevated oil costs, Moody’s stated, supply a window of alternative to speed up financial diversification and implement additional fiscal reforms amid supportive macroeconomic situations.

‘A key threat is that the absence of fiscal and liquidity pressures could immediate some GCC governments to delay or reverse reforms,’ it stated.

Moody’s expects the mixture of upper oil costs and manufacturing volumes to result in a big enchancment in GCC exterior and authorities funds, which is prone to be largely sustained by means of 2023 and, for some, additionally into 2024.

‘In distinction to 2015-2021 interval, when many GCC sovereigns ran giant fiscal deficits, we count on almost all GCC governments to submit strong surpluses in throughout 2022-2024. The one exception will probably be Bahrain, the place giant unexplained off-budget spending will proceed to weigh on the general fiscal efficiency,’ the ranking company stated.

Moody’s believes that GCC sovereigns may pay down a few of their excellent money owed with the anticipated fiscal surpluses, or at the least maintain their debt ranges regular in nominal phrases.

‘Oman, for example, already purchased again some, albeit comparatively small, quantity of worldwide bonds earlier this 12 months and intends to prepay a few of its excellent business loans, whereas Saudi Arabia goals to refinance a few of its future debt maturities at extra beneficial phrases, whereas maintaining the debt degree unchanged. We count on the GCC governments’ debt and debt affordability metrics to enhance, underpinning an enchancment of their total fiscal energy,’ Moody’s added.