Moody's affirms stable outlook for GCC sovereigns

The outlook for Gulf Cooperation Council (GCC) sovereigns will remain stable in 2019, as fundamental credit conditions will drive sovereign credit over the next 12-18 months, global ratings agency Moody's Investors Service said in a new report.

“While stronger oil prices during most of 2018 reduced fiscal and external pressures for GCC countries in the short term, periods of higher oil prices tend to undermine the impetus for governments to diversify their fiscal bases and rein in spending, leaving their credit profiles exposed to future phases of lower oil prices,” it noted.

Five of the six GCC governments that Moody's rates currently have a stable outlook, while one, Oman has a negative outlook. At the start of 2018, three of the six carried a negative outlook. 

Meanwhile, GDP growth in the GCC will be “broadly unchanged” this year, as the cuts in oil production agreed by OPEC+ nations lead to stable or slightly decelerating oil GDP growth. Non-oil GDP growth will pick up only modestly, Moody's said.

Though unemployment will remain stable or rise slightly further across the region, geopolitical tensions will remain a key source of risk.

Additionally, Moody's estimates oil prices to average $75 per barrel this year and fiscal balances to strengthen modestly compared to last year.

However, sharp drop in oil prices in the fourth quarter of 2018 highlights the vulnerability of GCC governments' credit profiles to future oil price declines.

"Should prices stay near $60 a barrel, budget deficits would be materially wider and debt likely higher than we currently project," the ratings agency noted.