The cost of cheap oil: $100 billion a year

A ratings agency estimates the fall in the oil price and associated budget pressures have cost Gulf governments $100 billion a year of reserves.

According to Moody’s, combined sovereign wealth fund and central reserve assets in the Gulf countries will fall to $2.1 trillion by the end of this year, down from an estimated $2.4 trillion in 2014.

“GCC countries will continue to face headwinds from subdued economic growth, increasing fiscal and structural reform fatigue, and persistent oil price volatility,” said the agency in a report.

Saudi Arabia’s coffers are among the hardest hit. Its foreign-exchange reserves, as reported by the Saudi Arabian Monetary Agency, fell by more than a quarter between August 2014 and November of last year, causing redemptions among asset managers that count the agency as a client. Moody’s predicts the country’s foreign reserves will fall by another $30 billion by the end of 2018.

“Government net asset positions will weaken in 2017 for all countries, but more significantly in Kuwait, Oman and Bahrain,” said Moody’s.

In response to the low oil price, Gulf governments have issued record levels of debt. The ratings agency predicts the debt-to-GDP ratio across the GCC countries will have rocketed to nearly 32% by the end of 2018, up from less than 11% in 2014. The prediction assumes Gulf governments will issue $154 billion of debt in this year and the next.

©2017 funds global mena

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