Supported by an expected higher oil prices, the GCC's aggregate fiscal deficit will narrow to 7.5 percent of GDP in 2017 and 4.9 percent in 2018, from 8.8 percent of GDP in 2016 and 8.7 percent of GDP in 2015.
However, fiscal deficits will remain sizeable in Saudi Arabia, Bahrain and Oman in light of challenges to further consolidation from low per capita incomes, Moody's GCC sovereign outlook for the year 2017, noted yesterday.
Qatar, UAE and Kuwait will record relatively low fiscal deficits of 4.0 percent, 2.9 percent and 3.0 percent of GDP, respectively in 2017. Given Qatar's stronger counter-cyclical approach, the ratings agency expects government spending to increase again in 2017 and 2018 after a short period of consolidation in 2016. The authorities have merged ministries, reduced the expatriate workforce, instituted a wage freeze, and cut administrative expenses.
However, the authorities are ramping up infrastructure spending, and the 2017 budget incorporates a 3.2 percent increase in capital spending. Moody's expects an average fiscal deficit of 3 percent of GDP for 2017-18.
Kuwait will make the largest expenditure adjustment over the 2014-18F period, reflecting a decline in the subsidy bill, non-recurrence of one-off spending, and cuts to other current expenditure. Government will face opposition to any further austerity, as reflected in recent parliamentary elections. Nevertheless, given Kuwait's low fiscal breakeven oil price we expect its fiscal balance to average 0.5 percent of GDP in 2017-18.
In UAE, the fiscal adjustment started earlier than in Qatar and Kuwait, with far-reaching subsidy reforms and capital spending cuts implemented as soon as 2015. Fiscal expenditures are expected to stabilise in 2017, with Abu Dhabi's cuts offset by fiscal expansion in Dubai in preparation of Expo 2020. Moody's expects an average fiscal deficit of 1.6 percent of GDP in 2017-18. Fiscal deficits will remain substantial in Saudi Arabia, Bahrain and Oman.
For 2017, the ratings agency expects deficits of 11.3 percent in Saudi Arabia and Oman, and 11.6 percent in Bahrain. All three face relatively larger challenges to a sharp deficit reduction from lower per capita incomes and greater social tensions.
However, Saudi Arabia and Oman have both incorporated sizable expenditure reductions between 2014 and 2016. "We expect real GDP growth in the GCC in 2017-18 to remain weak by historical standards with an average of 1.6 percent and ranging from 0.7 percent for Saudi Arabia to 3.3 percent for Qatar," said Mathias Angonin, Analyst at Moody's.
Debt issuance volumes will be lower in 2017 and 2018 compared to 2016, helped by the expected reduction in fiscal deficits. According to Moody's estimates, the debt-to-GDP ratio across the GCC will rise to 31.6 percent by 2018 from just 10.5 percent in 2014, adding another $154bn in government debt in 2017 and 2018.
Qatar and Bahrain will likely continue to rely solely on market funding whereas Saudi Arabia, Oman, UAE and Kuwait will issue debt and make use of government reserves.
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