Qatar has some room to delay consolidation measures into 2021 in order to offset expected revenue losses from the novel coronavirus shock, according to Moody's, an international credit rating agency.
Doha's ability to push consolidation measures until next year is mainly because prices of liquefied natural gas (Qatar’s main export) are set in long-term contracts and follow oil price movements with a lag, the rating agency said in a report.
By 2021, Moody's expects the impact of the oil price shock on Qatar's fiscal revenue to "peak".
Highlighting that Qatar government has announced "somewhat more modest" spending cuts so far, amounting to 4%-5% of gross domestic product or GDP; it said cuts include a large reduction in non-priority capital expenditures, which the government had announced in early March.
It also includes a more recently announced plan to reduce the salaries of expatriates employed in the government sector by 30%, "which we estimate could reduce spending by close to 1% of GDP on an annual basis", the credit rating agency said.
While the Gulf Co-operation Council (GCC) sovereigns have provided some targeted support to buffer the economy against the pandemic shock, most have enacted consolidation measures that significantly exceed the cost of fiscal stimulus with the aim of offsetting expected revenue losses, it said.
Among the GCC sovereigns, Moody's assessment of institutions and governance strength, in particular the fiscal policy effectiveness subcomponent of that factor, is highest for Abu Dhabi and Qatar, followed by Saudi Arabia and only then, with some distance, followed by Oman, Kuwait and lastly Bahrain.
"This ranking is broadly consistent with the size of the fiscal consolidation measures announced so far, particularly after adjusting for the size of the expected shock," it said.
The differences in policy response are, to a degree, proportional to the sovereigns' exposure to the shock, but are ultimately a reflection of differences in their institutions and governance strength (fiscal policy effectiveness in particular), which captures their adjustment capacity and indicates how durably lower oil prices are likely to impact their sovereign credit profiles.
Over the past three months, the GCC governments have announced various measures to offset at least a part of the large revenue losses that it expects to result this year from the combination of sharply lower oil prices and, in most cases, lower oil production, it said, revising down the average oil price assumptions to $35/barrel in 2020 and $45 in 2021.
A vast majority of the measures announced so far have been on the expenditure side, reflecting the simultaneous shock to the non-oil economy from the coronavirus pandemic and governments' desires not to place an additional burden on the productive sectors through new or higher taxes and fees, according to Moody’s.
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