Fitch Ratings recently predicted strong growth for oil-exporting countries in the Middle East and North Africa region next year. This growth in the region is supported by the increase in non-oil activities.
The agency expects positive financial performance for GCC countries to continue next year as oil production and prices stabilize. Moreover, Fitch expected that countries in the MENA region would witness a 3.5 percent growth in non-oil activities in 2024. The agency said this is driven by economic diversification efforts and new reforms.
Non-oil sectors
The Gulf oil-exporting countries have emphasized diversifying their sources of income by supporting non-oil economic sectors. This strategy was significantly reflected in Saudi Arabia’s gross domestic product (GDP).
Thus, Fitch expects Saudi Arabia to record a small deficit next year because it increasingly supports the non-oil sector. Additionally, it will continue the voluntary oil cuts it pledged to support the stability of oil markets.
In addition, Kuwait expects a slight deficit next year due to the challenges of taking measures to support non-oil revenues and reform spending.
As for Qatar, the UAE, and Oman, Fitch believes that these countries will continue to achieve a budget surplus next year. Meanwhile, Bahrain’s budget deficit is expected to shrink due to its efforts to reduce the deficit in the non-oil sector.
Impact of oil prices
Fitch indicated that its expectations are based on oil prices stabilizing at $80 per barrel. It stressed that any change of up to $10 in the oil price affects the Gulf Cooperation Council countries’ GDP by about 1.1 percent to 3.5 percent. Moreover, Fitch stressed that Saudi Arabia, Abu Dhabi, Qatar, and Kuwait are the countries most likely to boost their spending if the oil price exceeds expected levels.
“MENA oil exporters will register stronger growth in 2024, due to momentum in non-oil real GDP and broadly stabilizing oil production following output cuts in 2023,” said Fitch in the report.
Moreover, Fitch highlighted that weak global growth next year may push the OPEC+ alliance to further production cuts. This is if the oil market witnesses a large surplus in supply. The agreement OPEC + announced in late November showed the member states’ unwillingness to make further cuts.
Read: U.S. inflation surges ahead of Federal Reserve’s rate decision
Debt to GDP ratio
The report indicated that the debt-to-GDP ratio is expected to stabilize in most oil-exporting governments in the region. The ratio in Kuwait may rise, however, still be considerably low, if the public debt law is passed.
Additionally, Fitch stated that credit fundamentals in MENA countries may face many challenges. That is due to rising debt burdens and tight financing conditions in light of rising global interest rates. Meanwhile, domestic interest rates will also continue to rise amid high inflation rates.
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