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COVID-19, subdued oil price to leave most of Gulf in the red this year: Fitch

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The lingering impact of the COVID-19 pandemic and last year’s sharp drop in oil prices will leave most governments in the Gulf with deficits this year, ratings agency Fitch said.

Countries in the region will see their finances improve thanks to a rebound in oil prices and the unwinding of production cuts.

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But deficits will remain high, particularly in Kuwait and Bahrain. “We expect only Abu Dhabi and Qatar to eke out fiscal surpluses,” Fitch said in a report.

“High fiscal break-even oil prices illustrate the scale of the public finance reform challenge and mostly remain well above current or forecast oil prices.”

Fitch expects average Brent oil prices of $58 a barrel this year but its long-term forecast is $53.

Bahrain would need a price of nearly $100 a barrel to balance its budget in 2021-2022, Kuwait more than $80, and Saudi Arabia and Oman around $70, Fitch estimated.

Brent crude was trading around $66 a barrel on Tuesday.

Besides oil revenues, the coronavirus continues to weigh on Gulf states’ coffers, with some countries recently re-imposing restrictions on economic activity.

“Renewed waves of infections continue to hamper external receipts, public finances, employment and GDP growth,” said Fitch.

It expects Abu Dhabi and Qatar to post fiscal surpluses of 1.1 percent and 2.4 percent of GDP, respectively. Saudi Arabia, the Gulf’s largest economy, is forecast to post a 5.3 percent deficit.