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2020-03-30 10:15:00

#OilPriceWar LOSSES $192 BLN

#OilPriceWar LOSSES $192 BLN

PLATTS - 29 Mar 2020 - Oil exporters in the Middle East and North Africa region will lose $192 billion in crude income in 2020 due to the oil price crash and the economic repercussions from COVID-19, which will also see the region posting its first recession in three decades, according to the Institute of International Finance.

"Based on our baseline scenario of an average oil price of $40/b, the nine MENA oil exporters would see a fall in hydrocarbon earnings in 2020 of $192 billion (11% of GDP)," it said in a report published on Friday. "Consequently, the cumulative current account balance would shift from a surplus of $65 billion in 2019 to a deficit of $67 billion in 2020, and the fiscal deficit would widen from 2.9% of GDP to 9.1%."

The MENA region will see its economy contract 0.3%, with additional downside risks, the Washington-based institute said. This is happening despite governments unveiling stimulus measures aimed at propping up their economies from the twin shocks of the oil price crash and the coronavirus epidemic, it said.

"Quarantines, disruption in supply chains, the crash in oil prices in light of the breakdown of OPEC+, travel restrictions and business closings point to a recession in the MENA region, the first in three decades," IIF said in the report. "Governments are trying to mitigate the economic damage with stimulus packages, but many are starting from a weak position."

Oil exporters are also expected to post fiscal deficits in 2020 as oil income diminishes with the price crash, it added. The budget shortfalls will lead to an increase in public debt.

IMF's views

The IIF's views are echoed by the International Monetary Fund.

Gulf countries are expected to post deficits in 2020 and possibly slide into recession, Jihad Azour, the IMF's director of the Middle East and Central Asia department, told S&P Global Platts on Friday.

"Unlike the previous four years, more than two-thirds of the (deficit) financing need would be raised domestically and by tapping large financial buffers (particularly SWFs)," the IIF said. "Official reserves are expected to drop by $120 billion (mostly in Saudi Arabia, Algeria, Iraq, and Iran). We also project a sharp decline in the cumulative SWFs of Kuwait, Qatar, and the UAE."

Bigger deficits

Meanwhile, S&P Global Ratings has affirmed its ratings for Qatar, Saudi Arabia, Abu Dhabi due to their financial buffers. However, it revised upwards its forecasts for their fiscal deficit.

Abu Dhabi, whose "AA/A-1+" rating was affirmed with a stable outlook, is expected to see its fiscal deficit widen to 7.5% of GDP in 2020, compared with 0.3% in 2019, S&P Global Rating said.

"We expect higher oil production and dividends from government enterprises will only partly offset the impact of lower oil prices," it said. "At the same time, we anticipate that authorities will increase capital expenditure, its stimulus program announced in 2019 (Ghadan 21 initiative) and contributions to the federal authorities to manage the economic and social impact of the COVID-19 pandemic."

Saudi Arabia, whose "A-/A-2" rating was affirmed with a stable outlook, is projected to post a fiscal deficit of 11.2% of GDP in 2020, compared with 1.7% in 2019.

"Given the sharp fall in oil prices, fiscal revenues will be affected, although this will be partially compensated by expenditure cuts and dividend transfers from large state-owned enterprises including Saudi Aramco; and will also lead to increased issuance and higher drawdowns from sovereign assets," the agency said.

Qatar, whose "AA-/A-1+2 rating was affirmed with a stable outlook, is forecast to swing to a deficit of 2% of GDP in 2020 compared with a 6.6% surplus in 2019.

"The ratings are supported by the very strong external and fiscal positions, which are underpinned by relatively low central-government debt and the large external assets Qatar has built up over several years," the agency said.

Kuwait downgraded

Kuwait's long-term foreign- and local-currency sovereign credit rating was lowered to "AA-" from "AA" with a stable outlook due to the low oil price environment and slow pace of reforms in the Gulf state.

S&P Global Ratings maintained Kuwait's "A-1+" short-term foreign and local currency sovereign credit ratings.

It also lowered its long-term sovereign credit rating on Oman to "BB-" from "BB," with a negative outlook, and affirmed its "B" short-term rating.

The downgrade for Oman, the biggest Middle East oil producer outside OPEC, is due to the country's higher external risks and indebtedness, S&P Global Ratings said.

Bahrain, the smallest Gulf economy, had its "B+/B" rating affirmed, with the outlook revised to stable from positive.

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Tags: OPEC, RUSSIA, SAUDI, ARABIA, OIL, PRODUCTION, PRICE