Qatar, along with Abu Dhabi and Kuwait has “significantly larger” fiscal buffers relative to their expected funding needs than other GCC sovereigns, Bahrain, Oman, and Saudi Arabia, Standard & Poor’s has said in a report.
Qatar, Kuwait and Abu Dhabi stand out as having the most “robust stock” of assets, sufficient to withstand prolonged periods of lower revenues, S&P said in a report on sovereign credit ratings of hydrocarbon exporters’.
“All GCC sovereigns have built up fiscal external buffers during times of high oil prices, although Qatar, Kuwait and Abu Dhabi have significantly larger fiscal buffers relative to expected funding needs than the other three Gulf countries,” S&P said.
S&P currently rate Saudi Arabia just one notch below the ‘A’ sovereign rating it had assigned between July 2003 and April 2006.
Oman was rated one notch above the current rating between 2001 and 2004, but it was rated at the same level as the current rating prior to that. Abu Dhabi, Kuwait, and Qatar still have the highest rating of their sovereign ratings history, S&P said.
By contrast, in 2011 the rating agency had downgraded Bahrain to lower than previously, reflecting its view of the country’s “worsening” political situation.
GCC (Gulf Cooperation Council) sovereigns’ fiscal and external assets are “still at levels significantly above” what they had been during the last decade. However, fiscal spending and imports have also “materially increased” in the years in which oil revenues abounded, S&P said.
Consequently, for most GCC sovereigns, fiscal and external breakeven oil prices - the oil price level required to achieve at least fiscal and external balances - have “risen sharply” over the past few years, the rating agency noted.
According to the International Monetary Fund estimates, the oil price needed for Saudi Arabia to balance its budget was $38 in 2008, which increased to $106 by 2015; Oman needed $62 in 2008, but $95 in 2015.
Although S&P expects the GCC will continue its fiscal consolidation efforts, such that breakeven prices should trend down in 2016, it expects fiscal and external balances to remain substantially weaker over the next few years than they were over the past 15 years, including during the first half of the last decade.
Saudi Arabia, for instance, posted average fiscal surpluses of 18% of GDP between 2003 and 2008, whereas S&P expects average deficits of just below 10% of GDP in 2016-2019.
Similarly, the kingdom’s current account balance saw an average healthy surplus above 20% of GDP between 2003 and 2008, compared with S&P expectation of a current account deficit exceeding 10% in 2016-2019. S&P considers that curbing such fiscal spending and imports to regain balances will require difficult policy choices.
“Maintaining social and political stability could be more challenging in an environment of slower growth and fiscal contraction.  For these reasons, we consider that the current prolonged low oil price environment could pose more challenges to oil exporting sovereigns than when oil prices were at a similar level in the early 2000s,” S&P said.