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GCC Sovereigns: Fiscal Outlook Improves With Oil Prices And Reform Momentum

A World of Difference: Oil at USD45 a Barrel Versus USD75 a Barrel or HigherThis report looks at the impact of different oil price scenarios, ranging from USD45/bbl to USD75/bbl, on budgets deficits, government debt ratios and issuance needs across the Gulf Cooperation Council (GCC), where oil revenue dominates budgets.Fitch Ratings’ scenario analysis estimates that GCC budgets, except in Bahrain, would move into surplus if oil prices were to average USD75/bbl in 2022. At USD85/bbl, Bahrain’s budget would also be close to balance. In a stress scenario of USD45/bbl, fiscal balances would be in deficit across the GCC. This would create the most pressure for Bahrain and then Oman.

We estimate that gross domestic and foreign issuance across GCC sovereigns with USD65/bbl oil, for example, would be roughly half of what it would be with USD45/bbl.GCC Gradually Establishing Trend of ReformA gradual reconfiguration of fiscal policy in the GCC started with the oil price slide in late 2014. Government spending had risen amid generally high oil prices since the early 2000s and following the Arab Spring. Non-oil primary budget deficits have narrowed significantly in 2014-2019, even if they remain large, and reform efforts have been uneven across the region. Fiscal break-even oil prices have declined from very high levels.
Source: Fitch Ratings

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