2016 was especially tough for the world’s major oil producers in the Gulf Cooperation Council (GCC). Due to a major loss in oil revenues, national deficits are expected to average at about 10% of GDP, and governments have made rigorous efforts to scale back spending.
In an article for Petroleum Review, S&P Global Ratings’ Associate Director, Karim Nassif, explains that, in order to address growing fiscal challenges, GCC governments have begun to increase sector-specific taxes, implement cost-reflective tariffs, and cut energy subsidies. These reforms have hurt the operational performance of smaller private downstream oil and gas companies that rely on government subsidies, while larger government-related entities (GREs) remain fairly stable as they remain pinned to the performance and credit rating of their sovereign governments.
Fiscal tie-backs have also led to a shift in the region’s financing markets. While low-priced bank loans remain an attractive option for corporate and infrastructure financing, it is likely that access to affordable long-term funding may reverse as bank liquidity tightens in the region. In the long-term, S&P expects that GCC sovereign governments and corporates will rely on more creative methods of raising funds as banks’ once large deposit inflows are reduced and loan rates are repriced: these may come in the form of public-private partnerships and Islamic bonds known as ‘sukuk’.
The full article can be read here (a subscription is required).