The Coronavirus-related fall in oil revenues, deterioration in fiscal strength and constraints in government spending have contributed to the negative outlook for 2021 for Gulf Cooperation Council (GCC) sovereigns’ creditworthiness issued by rating agency Moody’s.
“Our negative outlook for GCC sovereigns reflects the coronavirus pandemic’s impact on oil revenue and our expectations for the erosion of fiscal strength experienced last year to extend throughout 2021,” said Thaddeus Best, a Moody’s analyst and the report’s co-author.
“The still elevated cost of funding for lower-rated sovereigns in the region will amplify these strains.”
Moody’s expects that it will take two to three years for real GDP to return to pre-pandemic levels in the region. Furthermore, economic recovery will take longer in the more economically diversified sovereigns given that sectors such as transportation and tourism will be slower to return to economic health.
The rating agency’s report also forecasts that GCC government debt burdens will increase this year by an average 21% points of GDP, although sovereign wealth fund buffers will go some way to mitigating the impact of higher debt burdens for most GCC economies.
The less creditworthy sovereigns, however, will likely face borrowing costs above pre-coronavirus levels despite a significant easing of market conditions compared to the first half of 2020.
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