The decline in crude oil prices has weakened the fiscal positions of GCC states. Despite the mounting pressure to implement subsidy reforms, budget spending remain broadly unchanged at c.44% of GDP as GCC states accelerated economic diversification from oil. Without such structural changes, the economic prospect of the region may remain at threat given an unlikely recovery in crude oil prices, at least in the near term. Nonetheless, multiyear expansionary policies might not be sustainable as fiscal buffers have been significantly weakened, mainly due to lower oil revenues.
Measured by the years of fiscal buffers and fiscal breakeven oil prices (refer to Chart of the Week), Oman (A1/A-/NR) and Bahrain (Baa3/BBB-/BBB-) seem vulnerable to prolonged expansionary policies and would exhaust their buffers in less than five years, building up pressures on their banks with notably reduced deposits inflows and increased borrowings by governments and government related entities. Saudi Arabia (Aa3/AA-/AA), on the other hand, has low government debt (1.6% of GDP) and sizeable reserves of USD726.8bn in 2014, allowing more room for debt issuance at the event of any budgetary shortfalls. Sovereign credit profile for Kuwait (Aa2/AA/AA) remains the most resilient, followed by Qatar (Aa2/NR/NR) and UAE (Aa2/NR/NR).