DOHA: Gulf sovereign’s high and increasing dependence on hydrocarbon revenue is a key vulnerability of their economies and their ratings. Bahrain and Oman are the GCC countries most vulnerable to a sharp and sustained decline in the hydrocarbons market, while Qatar and the UAE are the least vulnerable, Standard Poor’s Ratings Services noted yesterday.
The ratings agency study said the Gulf countries’ significant oil and gas reserves are key strength of their sovereign credit ratings. Yet, the concentration of their economies on the hydrocarbon sector could potentially become a significant vulnerability. The high income that the oil and gas sector generates, results in general government surpluses, low government financing needs, and net external asset positions for most GCC countries, including Qatar.
Fiscal breakeven oil prices have also increased across the GCC, indicating the still high fiscal vulnerability of the GCC economies to a decline in oil prices. For instance, in 2008, breakeven prices of all GCC sovereigns were below the market price for Brent oil. In 2009, when Brent crude oil prices dropped substantially to slightly above annual average of $61 per barrel, only Kuwait and Qatar’s breakeven oil price remained below the market price for Brent.
“Hydrocarbons account for more than half of Qatar’s nominal GDP and 90 percent of export revenues. Concentration risks related to the economy’s reliance on hydrocarbon resources remains high. However, we expect Qatar to maintain production at currently high levels for the longest period of time of all the GCC countries. At the same time, Qatar’s fiscal breakeven oil price is low and close to that of Kuwait”, the SP study said.
On an average, hydrocarbon revenues constitute 46 percent of nominal GDP and three-quarters of total exports of the six GCC countries. Furthermore, this strong dependence on hydrocarbon revenues appears to be increasing. This is partly a result of high oil prices feeding through to the national accounts data, but also because these countries have made only marginal progress in diversifying their economies away from hydrocarbon.
The SP study noted the UAE and Oman have made the greatest progress in reducing the hydrocarbon component of their exports. The concentration of the UAE’s hydrocarbon exports as a percentage of total exports has declined by almost 15 percentage points since 2001, mainly owing to re-exports and the services exports of Dubai. Oman reduced its export dependence by almost 10 percentage points between 2001 and 2013, to stand at 66 percent of total exports in 2013.
The Peninsula