GCC’s fiscal scene improves with current oil prices

Resurgent oil prices are causing a noticeable improvement in Gulf Cooperation Council fiscal and external balances in 2021, in addition to reform momentum that has taken hold to varying degrees since 2014 in response to oil price volatility, Fitch Ratings says.

Fitch’s scenario analysis estimates that GCC budgets, except in Bahrain, would move into surplus if oil prices ever touch the average USD75 a barrel in 2022.

At the current price of USD85/bbl, Bahrain’s budget would also be closer to balance. In a stress scenario of USD45/bbl on average in 2022, fiscal balances would be in deficit across the region. This would create the most pressure on Bahrain and then Oman.

A gradual reconfiguration of fiscal policy in the GCC started with the oil price slide in late 2014. Further fiscal reforms are expected in the gulf, particularly in the lower rated GCC sovereigns, given uncertainty over oil prices in the context of the push to limit global hydrocarbon demand and a greater focus in the Gulf on underlying fiscal performance stripped of the impact of oil revenue.


The longer that higher oil prices continue, the greater the risk of looser fiscal policy will be. The challenge of maintaining focus on fiscal adjustment is magnified by the policy dilemmas Gulf states encounter as they seek to achieve long term fiscal sustainability, while also delivering good economic outcomes for citizens and promoting economic diversification.