GCC countries to ease debt accumulation in 2019: Fitch

Fiscal consolidation looks set to slow across the Gulf Cooperation Council (GCC) in 2019 as governments focus increasingly on growth-supportive policies, despite oil prices levelling off, Fitch Solutions Macro Research said in a new report on Monday.

Although the pace of fiscal consolidation will slow relative to the last couple of years, it will still represent an improvement from 2018, likely leading to a further slowdown in public debt accumulation, the report added.

Fitch Solutions said, in particular, there appears to be a growing emphasis on the use of fiscal stimulus to encourage non-hydrocarbon private investment and business activity - an integral part of the various member states’ economic diversification programs and crucial for job creation.

Saudi Arabia’s draft budget, for example, envisions a 7.4 percent year-on-year (YoY) spending increase in 2019 specifically aimed at developing non-oil sectors and boosting employment, while Abu Dhabi’s ‘Tomorrow 2021’ program allocates $ 5.4 billion in emirate-level fiscal stimulus next year alone.

However, the report added, this does not represent a return to fiscal expansion on the kind of scale seen prior to 2014.

“Oil prices look set to remain comparatively lower, placing a ceiling on revenue gains, and all GCC governments are signaling a continued commitment to the containment of recurrent spending, particularly on public wages and subsidies,” it noted.

Fitch Solutions expects economic growth to hold up in the MENA region over 2019, remaining around the 2.7 percent YoY level recorded in 2018.

“GCC growth will be propped up by government spending, while North African countries such as Morocco and Tunisia are likely to see an uptick in consumption as a result of easing fiscal consolidation and moderating inflation,” it said.

Noting that the MENA region is relatively well insulated against global monetary tightening and rising volatility, the report said in much of the GCC, vast foreign exchange reserves and sovereign wealth fund assets, coupled with still-solid oil revenue inflows, will underpin investor confidence.

Moreover, it said, wealthier GCC countries (Saudi Arabia, the UAE, Kuwait and Qatar) will continue to provide financial support to their weaker counterparts (Bahrain and, most likely also, Oman) in order to prop up regional stability.

“Some of these countries will further benefit from inclusion in EM bond indices next year, which will substantially increase passive investment flows that have the potential to suppress borrowing costs.”