The reforms initiated by the monarchies of the middle East in response to the decline in oil prices, will only partially compensate them for loss of revenue, said Moody’s analysts in their recent review of “the cooperation Council for the Arab Gulf States: Country comparison — State resistance as a key adaptation to low oil prices”. The Council consists of Bahrain, Qatar, Kuwait, UAE, Oman and Saudi Arabia.
To solve the problem of filling the budget, Council members adopted a number of financial measures. In particular, they endorsed the introduction of a 5% VAT in 2018, which, according to Moody’s, will help diversify their revenue, and have also been considering increasing the tax on profit of legal entities and collection of remittances. These reforms could only “partly offset by a prolonged slump in oil prices and did not deliver oil-producing countries from financial problems and external limitations,” and after 2016, according to a survey.
In the framework of the last revision by the experts of Moody’s ratings of the countries — members of the Council, the Agency analyzed the ability of each country to develop and implement effective policy measures in response to low oil prices. Following the review, the Agency downgraded the sovereign ratings of three of the six countries of the Council, and confirmed the negative Outlook on the four ratings.
“Low oil prices test the endurance even of strong state institutions”, — quotes FT words of the author of the review of Mathias Angonin, Moody’s Analytics. According to Agency, the ability of the Council to implement economic and financial reforms in response to the decrease in oil revenue will depend on their state of sustainability.
“State institutions of the countries of the Council are at various stages of development, says Moody’s. Regarding the countries that are assigned to sovereign ratings, Qatar and the UAE to the high level of government stability, Bahrain and Oman — the average, whereas in Kuwait and Saudi Arabia — low,” Moody’s analysts conclude. “Social impact of financial reforms will complicate policy implementation in Bahrain (a rating of Ba2 with a negative Outlook), Oman (Baa1 rating with a stable Outlook) and Saudi Arabia (A1 rating with a stable Outlook), the governments of which are experiencing problems with the further direction of oil revenues to the population is needed to avoid civil unrest, caused by economic factors. For comparison, Kuwait (Aa2 rating with a negative Outlook), Qatar (Aa2 rating with a negative Outlook) and the UAE (Aa2 rating with a negative Outlook), such problems less,” — noted in the review.