It will take two to three years for real, inflation-adjusted GDP in GCC sovereigns to return to pre-pandemic levels, Moody’s Investors Service said in a report Wednesday.
Even then recovery will take the longest in the more economically diversified sovereigns, where key sectors such as transportation and tourism will be slow to bounce back, the ratings agency said in its outlook for sovereign creditworthiness among GCC members.
"Our negative outlook for GCC sovereigns reflects the coronavirus pandemic's impact on oil revenue and our expectations for the erosion of fiscal strength experienced last year to extend throughout 2021," said Thaddeus Best, a Moody's analyst and the report's co-author.
In most cases, however, access to vast sovereign wealth fund (SWF) assets continued to buttress very high fiscal strength, despite significantly lower oil prices, contracting economic activity and significantly lower revenue.
The report forecasts that GCC government debt burdens will rise on average by around 21 percentage points of GDP over 2019-21, compared with 14 percentage points on average for advanced economies.
While borrowing costs will remain high for sovereigns with small or no liquid sovereign wealth fund (SWF) buffers like Oman and Bahrain, they will be low for Abu Dhabi, Kuwait, Qatar and Saudi Arabia.
“Within the UAE, Abu Dhabi has largely pre-financed its budgetary requirements for 2021, although we expect additional issuance from Dubai and Sharjah. The $15 billion of bonds issued by Abu Dhabi in 2020 was in excess of budgetary needs and should cover 2021 requirements too. Debt issuance will remain the sole source of budget funding for Dubai and Sharjah, given the absence of SWF assets,” the report noted.
The fiscal measures implemented by GCC sovereigns to mitigate the effects of the pandemic have generally been modest, in most cases amounting to less than 2 percent of GDP. Except for Saudi Arabia and Bahrain, GCC governments have not provided support to workers (either directly or via employers) to compensate for the loss of salaries during lockdown, unlike many of their advanced economy peers.
“The vast majority of support efforts came from GCC central banks which rolled out substantial monetary stimulus and encouraged banks to offer payment holidays and other forms of relief for affected borrowers.”
Sovereigns with a higher share of expatriates and greater dependence on travel and tourism will find long-term growth painful. With residency rights for most expatriates still tied to employment status, job losses in the expat community tend to result in population decline. As a result, the recovery will be subdued.
Employment impact from pandemic likely greatest in UAE and Bahrain, where SMEs make largest contributions to activity and jobs. Citizen employment rates will also be hit given the high targets for citizen employment in private sector industries which have been hard hit by the shock, the report said.
(Reporting by Brinda Darasha; editing by Seban Scaria)
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