The Gulf States’ reluctance to raise taxes is one reason the region will be dependent on hydrocarbons for at least another decade, Moody’s said. The Gulf States’ reliance on hydrocarbons will remain the main credit constraint despite continued diversification efforts, he said.
“Economic diversification away from hydrocarbons remains the most frequently stated policy objective in the region but will likely take many years to achieve,” said Alexander Perjessy, a senior analyst at Moody’s and the author of the report. “The announced plans to boost hydrocarbon production capacity and government commitments to zero or very low taxes make it unlikely that heavy reliance on hydrocarbons will diminish significantly in the coming years.”
Oil and gas still account for at least a fifth of GDP, more than 65 percent of total exports, and at least 50 percent of government revenue.
Despite the governments’ ambitious plans, diversification efforts have had limited results since 2014, and Moody’s warned that while the diversification dynamic may accelerate, it is likely due to the reduced availability of resources to fund projects as well as competition within the GCC in a limited industry offer. Income taxes, royalties, and dividends (paid by national oil companies) still make up the majority of government revenue across the region.
Moody sees this in part as a result of the longstanding commitment by the GCC governments to a zero or very low tax environment “that is part of the implicit social contract between rulers and citizens but also reflects the desire for growth and development of the non-oil sector.
“It is estimated that the sovereign states of the GCC averaged less than 4 percent of GDP excluding hydrocarbons in 2019, compared to a corresponding rate of more than 22 percent for non-hydrocarbons. Income Economies.
Moody’s said that with oil prices averaging $ 55 a barrel (about half its median forecast), hydrocarbons would likely remain the largest contributor to the GDP of GCC government bonds and the main government revenue stream for at least the next decade.