Fiscal balances are set to weaken across much of the Gulf Co-operation Council (GCC) in 2019, maintaining pressure on some sovereign balance sheets, according to Fitch, a global credit rating agency.
In most of the GCC, the rating agency expects fiscal balances to worsen by 1-2pp of GDP (gross domestic product) this year under its assumption that the Brent crude will average $65 per barrel, down from more than $70 in 2018.
Fiscal plans announced for 2019 include some further reforms, such as the introduction of excise tax in Oman and Qatar, it said.
Nevertheless, these measures will only partially offset the headwind from lower oil prices and higher spending, Fitch said, estimating that a $10 per barrel change in oil prices impacts government revenues by 2-4pp of GDP, depending on the country.
"The effects of fiscal policy loosening that started last year will be exacerbated by lower oil prices. 2019 budgets so far point to still higher spending and only gradual fiscal reform, but we expect that weaker oil prices will prompt several countries to pare back their spending during the year," Fitch said in a report.
The rating agency estimates that the non-oil primary deficit relative to non-oil GDP, a measure of the underlying fiscal policy stance, increased in most GCC countries in 2018.
This is in spite of dramatic improvements in headline fiscal balances and reflects policymakers' decisions to use up some of last year's oil revenue windfall to support social stability and the recovery in non-oil growth (which should help non-oil primary balances improve in 2019), it said.
December's budget announcements by Oman and Qatar all include higher spending allocations in 2019 against 2018 budgets.
However, in Oman and Qatar, spending is still budgeted to be less than Fitch's expectation of full-year 2018 out turns. Furthermore, in Qatar, the cycle of capital spending, around 20% of total spending, appears to be peaking, and liquefied natural gas revenues, which lag oil prices, will remain somewhat supportive in 2019.
