The GCC economies and Iraq will remain primarily reliant on hydrocarbons in the next decade as the sector still fuels the majority of government revenues, S&P Global Ratings said, noting also that the pace of economic diversification is expected to remain gradual.
On an average, 81 percent of central government revenues are fuelled by the hydrocarbon sector, the ratings agency noted.
“The low cost of hydrocarbon production in the region provides GCC sovereigns some resilience to energy transition risk, helping buy time for economic diversification,” Benjamin J Young, Director – Financial Institutions & Sovereign Ratings at S&P said.
The hydrocarbon sector contributes on average about 40 percent to the GDP of the six hydrocarbon-producing GCC countries plus Iraq and on a per capita basis, GCC greenhouse gas emissions are among the highest globally, at 27.2 tonnes per capita.
“As global investors get to grips with the implications of climate change for their portfolios, they are likely to reappraise their appetite for investment in sectors and regions they perceive as most at risk from decarbonization initiatives,” Young said.
The ratings agency also said that since 2012, GCC economies have made some progress in diversifying away from oil.
S&P estimates that the non-oil private sector's share in Gulf economies' real GDP will reach an average of 36.8 percent by 2022, up from 29.2 percent in 2012.
According to the ratings agency, though GCC governments' diversification efforts have picked up pace, economic diversification will take time.
(Writing by Gerard Aoun; editing by Seban Scaria)
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