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With oil prices forecast to average close to $78 a barrel this hear - well above the $50 per barrel average that was recorded over the past 10 years - most of the region's oil exporters should record 'comfortable' fiscal surpluses in 2010. This, plus accumulated financial assets, should enable most Gulf states to maintain a degree of fiscal stimulus, helping to spur private activity despite the drag of weak consumer confidence and sluggish bank lending, the report said.
Budget-to-budget expenditure increases
As more oil-exporting countries have announced their 2010 budgets, the likely trajectory of government expenditure has become easier to measure. Budget-to-budget nominal expenditure increases in 2010 are expected to be implemented by Qatar and Kuwait (both at around 25%), Saudi Arabia (14%) and Oman (12%).
In particular, both Saudi Arabia and Oman 'have accumulated impressive cushions of financial assets which impart considerable fiscal flexibility', Moody's said.
Due to their weaker public finances, the region's oil importers are less able to offer fiscal support. However, these countries' banking sectors experienced less of a "credit shock" during the 2008/09 global crisis and their growth rates have been less volatile. Although oil importers' real GDP growth is expected to recover in 2010, it will remain weaker than pre-crisis levels and below the emerging market average.
Lebanon's ratings improve
Since releasing its sovereign outlook for the region in February, Moody's has implemented one further positive rating action in the region, upgrading Lebanon's sovereign ratings by one notch, to B1. The country's real estate sector has prospered since the improvement of domestic politics in the first half of 2008, and bank deposit inflows from abroad have surged.
'The obvious concern now is that asset prices may overheat, laying the ground for a painful correction in the event of a potential political shock. Although we have raised our sovereign ratings on Lebanon, they remain low and we note our concern over the country's high political risk and weak public finances,' the report said.
The report pointed out that, so far, the volatility of European financial markets and the widening of spreads in the Eurozone periphery have not had a significant effect on the region's cost of funding. However, it warned that the economies of oil-exporting countries would only suffer if a steep fall in European economic activity led to a sharp and sustained fall in oil prices. "However, we consider this to be an unlikely scenario given buoyant oil demand in emerging markets," Moody's said.
Jeff Florian, Senior Reporter
