Qatar is expected to reduce its debt-to-GDP ratio by 35 percentage points of GDP by end-2023, Moody’s Investor Service has said in a report. Improvements in fiscal metrics will be the greatest in Qatar and Oman in the GCC region this year, it said.
For all GCC sovereigns, sustained growth in nominal GDP following the large rebound in 2022 will continue to reduce debt-to-GDP ratios.
However, in Oman and Qatar, debt burdens will also likely decline further in nominal terms as they did in 2022, as the governments prioritise deleveraging.
Oman reduced its debt stock by nearly 15% in nominal terms in the year to December 2022 and Moody’s expect another, albeit much smaller, nominal debt reduction in 2023.
“By the end of 2023, we expect Oman and Qatar to have reduced their debt-to-GDP ratios by around 25 and 35 percentage points of GDP, respectively, compared to peaks at the end of 2020. By contrast, in Saudi Arabia, Kuwait and the UAE, where government debt is relatively low, we expect governments to prioritise accumulation of liquid fiscal reserves and sovereign wealth fund assets.
“Kuwait is the standout, with nearly no debt to repay in 2023 out of its already very small debt stock of only 3% of GDP at the end of 2022,” Moody’s noted.
According to Moody’s another year of fiscal surpluses will allow GCC governments to consolidate the reductions in debt burdens and improvements in debt affordability, which took place in 2021-22.
In most cases, greater debt affordability will be sustained despite rising global interest rates as relatively long maturities of existing government debt will delay repricing of the outstanding debt stock.
Governments will also have the opportunity to use their surpluses to rebuild fiscal buffers that were eroded over the 2015-20 period.
In some cases, these buffers are already very large and significantly exceed government debt, lending material support to our assessment of the sovereigns' fiscal strength.
As of 2021, government financial assets amounted to around 340% of GDP in Kuwait, 280% in the United Arab Emirates, and 185% in Qatar. The assets were more modest, but still large by international comparison, in Saudi Arabia (around 33% of GDP) and Oman (26% of GDP).
Moody’s noted high oil prices will continue to bolster GCC sovereigns' credit quality in 2023.
“We assume Brent crude oil will average around $95/barrel, below the 2022 average of $100/b, but significantly above the average of $57/b in 2015-21,” the report said.
Although GCC crude oil output is likely to decline in 2023 on strategic production cuts by Opec+, hydrocarbon revenue will remain robust, allowing most GCC sovereigns to run substantial fiscal and current account surpluses.
These surpluses will offer governments a further opportunity to pay down debts, rebuild fiscal reserves, accumulate foreign-currency buffers, and advance structural reforms and diversification projects.
Stronger government balance sheets and more diversified economies will increase resilience to future economic and fiscal shocks, while reducing government liquidity and external vulnerability risks.
“Even if oil prices fell to around $80/barrel, we expect most GCC governments would avoid a material rebound in debt burdens and deterioration in debt affordability,” Moody’s noted.