Saudi Arabia and Oman will face slower economic growth as oil prices weaken further, a report by Standard & Poor’s (S&P) says.
S&P lowered its long-term outlook for Saudi Arabia’s from ‘positive’ to ‘stable’, while Oman’s outlook dropped from ‘stable’ to ‘negative’.
Both countries are heavily reliant on revenue from their petroleum sector, which in Saudi Arabia accounts for 44% of the Kingdom’s GDP.
“We view Saudi Arabia’s economy as undiversified and vulnerable to a sharp and sustained decline in oil price, notwithstanding government policy to encourage non-oil private sector growth,” S&P said on Friday.
Even the non-hydrocarbon sector in Saudi Arabia depends on oil revenue as it is mainly funded by government spending, which depends greatly on revenue from the oil and gas sector.
About 85% of exports and 90% of government revenue stem directly from the hydrocarbons sector, according to S&P.
The kingdom’s GDP per capita through 2017 was predicted top decrease to $23,400 from a June forecast of $25,600 over the period.
Last month, S&P’s warned of slower economic growth in the GCC due to a drop in oil prices, where about 46% of nominal output derives from hydrocarbons.
Only the UAE does not rely as heavily on oil as the rest of its GCC neighbours.
Its richest in hydrocarbons emirate, Abu Dhabi, for example, enjoys a stable economic outlook thanks to its diversified economy.
Suhail Al Mazrouei, UAE Energy Minister, said the fall in oil prices would not have a “catastrophic effect” on the country, adding that oil constituted only 30% of the national GDP.
Oil accounted for just less than half of Oman’s GDP last year. Now Omani crude oil is forecast to average approximately $80 a barrel over the next two years, down substantially from the S&P’s previous assumption of $95 a barrel.
“This has a negative impact on our assessment of Oman’s fiscal and external position given the country’s high dependence on revenues from hydrocarbons, oil in particular,” the ratings agency said.
Additionally, most of Oman’s fields are mature therefore maintaining exploration and production could prove very expensive for the sultanate.
“We now expect the traditional current account surplus, which was equivalent to over 10 per cent of GDP in 2012, to turn to a small deficit in 2017, equivalent to 0.2 per cent of GDP, as oil receipts drop and demand for imports of capital goods remains high,” S&P said.
Brent crude closed at $69.07 on Friday and is down about 40% since June.
