Bahrain and Oman are likely to finance any increase in fiscal deficits next year through sovereign debt issuance, according to Moody's Investors Service.

The ratings agency said that while the six GCC states can withstand the pressure of oil prices averaging around Moody's estimate of $80 to $85 a barrel next year, Bahrain and Oman's credit profiles may be affected, because the two sovereigns exhibit a combination of high fiscal breakeven oil prices and low reserve buffers, said a report in the Gulf Daily News (GDN), our sister publication.

Of the two, Oman's overall government finances are healthier, while Bahrain's external position is stronger, the agency added.

Moody's report says that most of the GCC states can withstand the pressures resulting from lower oil prices without having to make significant policy adjustments, but that they would, if needed, likely adjust their fiscal policies accordingly.

Kuwait and Qatar are the most resilient, given their very low fiscal and external breakeven oil prices, and large reserve buffers.

Saudi Arabia and the UAE exhibit slightly weaker fiscal fundamentals and higher external breakeven oil prices than Kuwait and Qatar.

Moody's expects that Saudi Arabia's fiscal balance will turn into a deficit next year, and Bahrain and Oman's deficits may widen to above seven per cent of their respective GDP.

All GCC countries except Oman should show current account surpluses next year.

Saudi Arabia has indicated that it will use its reserve buffer to finance its deficit.

The ratings agency does not expect Kuwait and Qatar to raise their debt levels.

The report also says that GCC governments' fiscal adjustments to lower oil prices will vary, starting with expenditure adjustments on non-strategic investment projects.

Slowing or even reversing the growth in current government spending, including subsidy reforms, will be more difficult as governments seek to meet social welfare demands.

As for revenue-enhancing measures, these efforts would most likely start with adjustments to existing taxes, tariffs and other non-oil revenue.

The introduction of new taxes - most likely indirect - would be a last resort. - TradeArabia News Service