Standard & Poor's indicated that high global oil prices are promoting growth in the countries of the Gulf Cooperation Council (GCC) and are insulating their economies and credit quality from global and regional economic and political uncertainties.
However, it warned from longer-term risks to the favorable developments in GCC countries. It said that insufficient economic diversification and slow progress on political reforms would make Gulf countries vulnerable to a sudden drop in global oil prices. It added that the rise in public spending increased Gulf economies' vulnerability to a collapse in global oil prices, given that the majority of public revenues comes directly from oil receipts. It added that fiscal breakeven oil prices have increased significantly since 2009. It estimated that a number of regional oil exporters have posted fiscal deficits last year, despite an average annual record high for Brent crude oil of $112 per barrel in 2012. It added that the gap between market prices and breakeven oil prices has narrowed substantially compared to 2008.
In parallel, it said that the region's increased vulnerabilities reflect two main structural weaknesses. First, it noted that the region's underdeveloped policy-making framework limits the effectiveness, stability and predictability of decision-making. Second, it added that monetary policy is inflexible due to the fixed exchange rate regimes and shallow local capital markets, particularly in local currency terms.
Standard & Poor's