High fuel prices bring GCC public debt down

June 24, 2014 - 1:38:36 am

DOHA: The GCC countries, including Qatar, had reduced their debt as fuel prices rose. Moody’s latest analysis confirms that, for countries in the Gulf region, the ratio of government debt to GDP decreased in response to an increase in 

commodity export prices, and vice versa.

Moody’s report illustrates that Qatar’s total government debt that stood at 35.8 percent of the country’s GDP in 2012 decreased to 32.8 percent in 2013.

For countries in the Gulf region, all of which have large sovereign wealth funds, Moody’s found that a 1 percent decrease in export prices would worsen budget balances by 0.08 percent. For these countries a 1 percent fall in the export commodity price index decreases government revenue relative to GDP by 0.1 percent over the period of 2001-12, and 0.06 percent over the longer period of 1991-2012. This indicates a larger response of revenues during the period of high commodity export prices.

Moody’s analysis shows that, in the case of fuel exporters, the ratio of debt to GDP increases as a result of a fall in commodity export prices over the longer sample period of 1991-2012. However, in the case of exporters of agricultural raw material (agro) and metals, a fall in commodity prices decreases the ratio of debt to GDP across both samples.

Fuel exporting countries GDP growth rates significantly outpaced those of other commodity exports over the period. The report noted that the countries that have sovereign wealth funds are more resilient to an adverse commodity price shock than those that do not. The rapid growth of commodity prices from 2000 to mid-2011 was interrupted only by the financial crisis in 2008. 

During the initial period of high and rising commodity prices in 2000-07, commodity-exporting countries performed better on average in terms of GDP growth, inflation and fiscal outcomes that they did during the 1990s. Among commodity exporters, fuel exporters topped the list in terms of performance, recording higher GDP growth than other commodity-exporting groups. By comparison, the average annual GDP growth rate for exporters of metals and minerals increased from 3.6 percent to 4.4 percent over the same period.

Fuel-exporting countries also recorded greater improvements in external and general government fiscal balances that other commodity exporters.

The external position of fuel exporters improved dramatically, from an average current account deficit of 3.9 percent of GDP over 1990-99 to a surplus of 9.6 percent of GDP over 2000-07. By comparison, the current account balance of metals exporters only marginally improved, while the external balance of exporters of agricultural products actually worsened.

The Peninsula

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