- 60 percent of the deficit relates to the region’s largest economy, Saudi Arabia
- S&P predicts central government deficits will reach about $355 billion cumulatively between 2021 and 2024
Budget deficits of the six-nation Gulf Cooperation Council (GCC) bloc are set to fall sharply to about $80 billion in 2021 from $143 billion in 2020, S&P Global Ratings said.
In terms of GDP, this would mean a fall to 5 percent of GDP from the 10 percent earlier, a media report said.
The lower deficits will be supported by higher oil prices, fiscal consolidation measures, and a higher level of economic activity as COVID-19 restrictions are eased, the report added.
The ratings agency forecast that between 2021 and 2024 central government deficits would reach about $355 billion cumulatively. This will be met roughly split 50:50 between debt issuance and asset drawdowns, it said.
About 60 percent of the deficit relates to Saudi Arabia, the GCC’s largest economy. Kuwait followed with 25 percent, the United Arab Emirates (UAE) with 7 percent, and Oman with 4 percent.
This scenario assumes an average Brent oil price of $60/bbl for the remainder of 2021, $60/bbl in 2022, and $55/bbl in 2023 and beyond.
The S&P said while higher oil prices are supportive of the GCC, government ratings are by no means the only factor considered, as government policy responses are critical too.
“Indeed, higher oil prices derailed GCC governments’ fiscal consolidation plans in the past, leading to increased spending and/or delays in planned fiscal reforms. The path to significantly narrowing GCC fiscal deficits remains contingent upon the direction of government policy responses as much as it does on oil prices,” it said.
GCC government debt increased by much less in 2020 ($70 billion), due to fiscal constraints and more diversified government revenue sources.
“Looking ahead, we expect total annual debt issuance to average about $50 billion over 2021-2024, with higher borrowing in the outer years, when we assume lower oil prices,”