Qatar and Oman are the among the Gulf countries to benefit the most from high oil prices, which will buttress balance sheets, according to a top official of Moody's.
"Sovereigns most sensitive to oil price fluctuations and with elevated debt burdens could see the most significant improvements in their fiscal and economic strength, exerting upward pressure on their credit profiles. Among those, Oman and Qatar stand to benefit the most," Alexander Perjessy, vice-president, senior credit officer, Moody's yesterday told a media roundtable.
The rating agency said elevated oil prices during the next two years will lead to a significant improvement in the fiscal and external positions of Gulf Co-operation Council (GCC) sovereigns, partly reversing their sharp deterioration in their balance sheet since 2015.
Moody's said in both Oman and Qatar, it assumes that non-interest spending will grow less than 2% in nominal terms this year and the next.
However, in both cases, there is a "significant" degree of uncertainty about how the elevated oil price windfall will be distributed between the national oil company (QatarEnergy and Energy Development Oman) and the budget; and to what extent the budgetary surpluses will be used for debt reduction or to build sovereign fiscal buffers (through transfers to Qatar Investment Authority or to the Petroleum Reserve Fund in Oman).
For the higher-rated GCC sovereigns, other than Qatar, upward credit pressures will be limited to modest improvements in economic strength (mainly due to higher nominal gross domestic product or GDP and some pickup in trend growth) but the credit profiles will remain steady and upwardly constrained by the sovereigns' large exposures to longer-term carbon transition risks and their ability to, over time, mitigate these risks.
"We expect oil prices to average around $105/barrel in 2022 and $95 in 2023 as geopolitical risks stemming from Russia's military invasion outweigh risks to global oil demand," Perjessi said.
Consequently, most hydrocarbon-exporting sovereigns will run twin fiscal and current-account surpluses, allowing the governments to pay down debts, rebuild fiscal reserves and accumulate foreign-currency buffers, thereby reducing government liquidity and external vulnerability risks, he added.
The recovery in global oil demand and prices from the 2020 pandemic slump has allowed the major hydrocarbon producers, including those in the GCC region, to ramp up their production by reversing most of the production cuts implemented by the Organisation of Petroleum Exporting Countries and their allies in May 2020.
"We expect the combination of higher oil prices and production volumes to lead to a significant improvement in GCC external and government finances, which is likely to be largely sustained through 2023 and, for some, also into 2024," Perjessi said, adding the GCC sovereigns could pay down some of their outstanding debts with the expected fiscal surpluses, or at least keep their debt levels steady in nominal terms.