It will take several years for Gulf Cooperation Council (GCC) states to diversify away from oil and gas, global rating agency Moody's said on Monday.
Hydrocarbons reliance of GCC states, a political and economic alliance of six Middle Eastern countries—Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman, will remain the key credit constraint despite ongoing diversification efforts, according to a report by Moody's Investors Service.
"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 2020 pandemic-induced shock to oil demand and prices highlighted very high exposure of GCC countries to oil market fluctuations, the report noted.
"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," he added.
For most GCC countries, the report said oil and gas still account for at least 20% of GDP, more than 65% of total exports and at least 50% of government revenue.
Despite ambitious government plans, diversification efforts since 2014 have yielded only limited results and will be held back by lower oil prices.
Moody's forecast an uptick in the diversification momentum but said it would be held back by the reduced availability of resources to fund diversification projects in a lower oil price environment and by intra-GCC competition in a relatively narrow range of targeted sectors.
“Hydrocarbons will continue to drive GCC sovereigns' fiscal strength, liquidity position and external vulnerability for many years,” it said.
By Sibel Morrow