The Arab Gulf oil producers are expected to slash their combined government deficits to some $80 billion this year from $143 billion last year, thanks to higher oil prices, reopening economies, and fiscal consolidation, S&P Global Ratings said in a report on Wednesday.
The total government deficits of the six members of the Gulf Cooperation Council (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE)—are expected to drop to 5 percent of gross domestic product (GDP) this year, compared to deficits of 10 percent of GDP in 2020, according to the ratings agency.
Despite the expectation of reduced deficits compared to the shock of 2020, deficits will further deteriorate governments’ balance sheets in most cases, S&P Global Ratings said.
Many of the GCC countries introduced austerity measures last year to cope with the double shock of collapsing oil prices and economic restrictions due to the pandemic. For example, Saudi Arabia, the biggest GCC economy and the world’s top oil exporter, was forced by oil market circumstances to implement some unpopular austerity measures, including a triple increase in value-added tax (VAT) and the cancellation of so-called cost-of-living allowances for civil servants.
As per S&P Global Ratings estimates, the combined GCC central government deficit deteriorated less last year compared to the previous oil price collapse in 2016, despite the lower average Brent Crude price of $42 a barrel last year versus the average $44 back in 2016, S&P Global Ratings said.
Many of the GCC countries have available external liquidity to cope in case of external shocks, the rating agency noted.
Earlier this month, Moody’s said that Saudi Arabia could see its budget deficit drop to below 5 percent of GDP this year if oil prices average $60 per barrel.
Fitch Ratings also expects GCC countries to significantly narrow their fiscal deficits this year, assuming Brent prices average $58 a barrel and OPEC+ unwinds production cuts beyond the 2.1 million-bpd output increase already announced for May-July.
“Nevertheless, fiscal deficits will remain high, particularly in Kuwait and Bahrain. We expect only Abu Dhabi and Qatar to eke out fiscal surpluses”, Fitch said last month.