The divergence between the ratings of energy exporters and importers in the Middle East and North Africa (MENA) is narrowing due to lower oil prices, Fitch Ratings has said.
The ratings agency said in a statement that lower oil prices have changed the economic environment for the region’s exporters, with Bahrain and Oman most at risk from the recent price slump.
Fitch said the oil market downturn will reduce fiscal and external outturns and hit corporate and consumer confidence in some GCC oil producing nations.
Fitch said it expects Brent crude to average $70 per barrel in 2015 and $80 per barrel in 2016.
“The extent of the impact on the fiscal position depends on the policy response, although in a region where growth is dependent on government spending, fiscal consolidation is likely to have negative impacts on growth,” said Fitch in the statement.
Abu Dhabi and Saudi Arabia are the only Fitch-rated oil exporters to have released 2015 budgets so far. Abu Dhabi cut budgeted spending by one-third. Saudi Arabia issued an expansionary budget, but overspending (which has averaged 25 percent over the past decade) is likely to be curtailed.
Fitch said capacity to absorb lower oil prices varies in line with its ratings, adding that Bahrain (BBB/Negative) seems the most strained, with a 2014 fiscal breakeven oil price of $130 per barrel and debt/GDP already above the peer median, and was placed on a Negative Outlook in December.
The statement added that Oman also requires more than $100 per barrel to balance its budget, but has sovereign wealth fund assets and a low debt burden.
‘AA’ rated Abu Dhabi and Kuwait are still expected to post fiscal and external surpluses in 2015 and net sovereign foreign assets in excess of 150 percent of GDP provide vast buffers in the event of prolonged low oil prices, Fitch said.
In Saudi Arabia (AA), the impact on the fiscal position has been aggravated by a spending package worth 3.9 percent of 2014 GDP announced by the new king. However, Fitch said the kingdom has exceptionally large buffers and virtually no debt, although it is examining debt financing options.
“The smooth succession and appointment of a member of the third generation of the royal family in the line of succession removes a potential source of political risk,” Fitch added.
The ratings agency also said oil importers are benefiting from lower prices through reduced import bills and lower fuel subsidy costs. Jordan stands to gain the most, with net fuel imports of 16 percent of GDP and fuel subsidies of around 8 percent of GDP. Source: Arabian Business