Falling oil prices leave Gulf countries with deficits

The impact of COVID-19 and the sharp fall in oil prices will leave most Gulf governments with deficits this year, the Fitch rating agency has announced.

Despite these poor forecasts, the agency also notes that, thanks to the recovery in oil prices and the easing of production restrictions, the outlook for some of the countries is improving. "We expect Abu Dhabi and Qatar to achieve a fiscal surplus," Fitch points out.

On the other hand, the countries with the worst forecasts are Kuwait and Bahrain. The rating agency has established that "high fiscal breakeven oil prices illustrate the magnitude of the public finance reform challenge and, for the most part, remain well above current or expected oil prices".

Fitch expects the Brent average to reach $58 this year. But the agency's estimates indicated that Bahrain needs a price of around $100 per barrel to break even in the 2021-2022 budget. Kuwait needs more than $80 and Saudi Arabia and Oman need around $70.

According to the rating agency, new waves of infections continue to hamper external revenues, public finances, employment and GDP growth. Most countries in the region have seen a spike in coronavirus cases in the first quarter of this year, and some, such as Oman, Jordan and Kuwait, have reimposed significant restrictions on economic activity, after easing them at the end of 2020.

Also, some countries in the Middle East and North Africa are leading the global vaccination drive, notably Israel, the UAE, Bahrain and Qatar. However, economic recovery will also depend on ending the pandemic elsewhere, especially in Europe.