Riyadh - Mubasher: The impact of the coronavirus pandemic on oil demand and prices has significantly increased gross funding requirements for sovereigns across the GCC, which will be partly funded by drawing down sovereign wealth fund (SWF) assets, Moody's Investors Service said in a report on Wednesday.
The stock of SWF assets in Qatar and Abu Dhabi remains more than ample to cover decades of fiscal deficits at current levels. However, for Oman and Saudi Arabia, which possess a more modest stock of SWF assets, significant drawdowns will lead to substantial erosion of their SWF buffers over the medium term, reducing the uplift to fiscal strength derived from these assets, and increasing external vulnerability risks in Oman.
In Kuwait, very large fiscal deficits have largely depleted the liquid portion of the smaller General Reserve Fund, increasing liquidity risks in the absence of a debt law despite the large stock of assets held in the Future Generations Fund, which are currently ringfenced from the general budget.
"While the recovery in equity market valuations last year reversed the paper losses facing GCC SWFs, lower oil prices will keep transfers flowing out of most SWFs on a net basis," said a Moody's analyst and the report's co-author, Thaddeus Best.
Reserve adequacy remains more than ample to support most GCC currency pegs. However, in Oman's case, large twin deficits will lead to a decline in both international reserves and SWF assets, increasing external vulnerability risks over the medium-term.