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Higher oil prices will not be a quick fix for hydrocarbon-exporting sovereigns’ balance sheets. Factors including long term revenue plans and policies are important too, according to a report from S&P Global Ratings.
Higher prices for oil and gas generally improve government budget and current account positions, the agency said, but the prolonged and in some cases ongoing structural deterioration in their stock positions, government net debt and net external debt, alongside modest fiscal and economic reform momentum are key considerations, the report said.
S&P recently raised its assumptions for average Brent oil price to $75 [per barrel] for the remainder of 2022, $65 in 2023 and $55 in 2024 and beyond.
“An increase or decline in oil prices positively or negatively affects hydrocarbon exporters, including through their fiscal revenues, balance of payments, and GDP,” the report said.
When higher oil prices result in higher revenues, governments may choose to allow their fiscal balances to improve or they may decide to increase spending to support their economies, it continued.
Even if oil prices increase further, S&P said it would not necessarily expect the sovereign ratings on hydrocarbon-exporting sovereigns to return to pre-2015 levels.
“Many hydrocarbon exporters have experienced a deterioration in their fiscal and external balance sheets as low oil prices resulted in sustained and sizable fiscal and external borrowing needs, the report concluded.
“These have been met either by debt accumulation or asset drawdowns. Even if the fiscal and external deficits of hydrocarbon exporters improve in the near term on the back of higher oil prices, it would likely take longer for their net asset positions to strengthen to pre-2015 levels.”
(Writing by Imogen Lillywhite; editing by Daniel Luiz)
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