The ratings agency said that stronger oil prices during most of 2018 reduced fiscal and external pressures for the GCC countries in the short term. 'But periods of higher oil prices tend to undermine the impetus for the governments to diversify their fiscal bases and rein in spending, leaving their credit profiles exposed to future phases of lower oil prices.'
Moody's said that geopolitical tensions will remain a key source of risk as well as a catalyst for rising military-related fiscal spending in the region.
It said the GDP growth in GCC will be broadly unchanged this year, as the cuts in oil production agreed to by OPEC+ nations lead to stable or slightly decelerating oil GDP growth, while non-oil GDP growth picks up only modestly.
'Against that backdrop, we expect unemployment to be broadly unchanged or rise slightly further across the region. Over the longer term, demographic trends will cause joblessness to climb, unless the participation of nationals in the private sector increases significantly,' Moody's said.
With most fiscal reforms now likely behind the GCC, Moody's said oil prices and production will be the major drivers of fiscal balances over the coming year. Under Moody's current assumptions of oil prices averaging US$75 per barrel in 2019, fiscal balances will strengthen modestly compared to 2018.
'However, the sharp drop in oil prices in the fourth quarter of 2018 highlights the vulnerability of GCC governments' credit profiles to future oil price declines. Should prices stay near US$60 per barrel, budget deficits would be materially wider and debt likely higher than we currently project,' Moody's added.