Page 9 - MEOG Week 13

MEOG PolICy MEOG
GCC in for significant economic pain from falling oil prices
GCC
THE fall in oil prices is expected to significantly widen fiscal deficits for Gulf Cooperation Coun- tries (GCC) countries. As a result, countries are anticipated to accelerate drawdowns from wealth funds and issue debt at a faster pace, Fitch ratings agency said in a note.
Based on an average oil price of $41 per bar- rel, Fitch forecasts all GCC countries to record a budget deficit in 2020, with the deficit widening to 5% of GDP in Qatar, 15% of GDP in Kuwait, almost 14% in Bahrain and Oman and to 10% in Saudi Arabia. Fitch acknowledges that in the highly oil price sensitive economies of the Gulf, a $10 per barrel shift in the average annual oil price could set budget deficits back by about 4-6% of GDP.
To counter the economic slowdown from the dual oil price and coronavirus shocks, Fitch notes the economic stimulus packages adopted by all GCC countries, ranging from nearly 30% of GDP in Bahrain, more than 10% of GDP in UAE and Qatar, and over 4% of GDP in Saudi Arabia. However, the monetary and off-balance
sheet nature of the adopted measures could eventually result in contingent liability for the government if the economic downturn persists.
Many governments have been forced to sus- pend fees and taxes and slash down spending resulting in fiscal expenditure cuts. Oman leads the way on this front with a 5% planned spend- ing cut for the year followed by Saudi Arabia that foresees a 5% reduction in new state expenditure on top of previously announced 3% cut.
Fitch expects GCC funding mix to shift in favour of drawdowns from fiscal reserves in 2020. It estimates GCC governments to issue around $42bn in foreign debt this year, from $48bn last year. This will be accompanied by around $110bn in drawdowns from fiscal reserves and wealth funds, compared with only $15bn last year. The reserve drawdown is likely to be led by Kuwait, Saudi Arabia and Abu Dhabi. The erosion of fiscal and external positions of GCC countries that accompany asset draw- downs could lead to adjustments in their rating, the agency said.™
Kurdistan unable to pay as funds are locked in Lebanon
kurdIstan
KURDISTAN’S oil industry is teetering on the brink of collapse and operators in Iraq’s auton- omous region are fighting for their survival in loss-making fields.
The oil ministry of the Kurdish Regional Government (KRG) in Iraq has been unable to pay energy companies operating in the semi-au- tonomous region because its cash has been stuck in a Lebanese bank that is facing a liquid- ity crunch and the oil price crash will only make matters worse, sources told S&P Global Platts.
The Kurdish government had $1bn in the bank account, which it cannot access because of the liquidity issues caused by the financial crisis in Lebanon. “That was cash the KRG [had] put in there for a rainy day and [is] now not able to draw,” a source told Platts.
KRG’s oil and finance ministries declined to comment on the payments issue.
“The [bank account] issue has been ill-timed
due to the oil crash, however, and exacerbates payment risk over and above the underlying problems from low oil prices,” said Patrick Osgood, senior Iraq analyst at Control Risks.
Two oil companies operating in Kurdistan, Norway’s DNO and UK’s Genel Energy, have said production in the region and their ability to spend on operations will be affected by delayed payments from the ministry.
Payments for crude production in October and November 2019, which were due in Janu- ary and February 2020, have not been received, Genel said earlier this month.
The London-based company said drilling activity at the Tawke licence had been scaled back and the Qara Dagh-2 well spud set for the second quarter was likely to be delayed.
Genel’s warning followed that of its Norwe- gian partner DNO in the Tawke licence, where the UK company has a 25% stake.
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