Despite concerted efforts to move away from oil and gas resources as the mainstay of their economies, Oman and its peers in the Gulf Cooperation Council (GCC) will continue to remain dependent on hydrocarbons over the foreseeable future, according to a key report by Moody’s Investor Service.
Moody’s warned in its report that Gulf states’ reliance on hydrocarbons will remain the key credit constraint despite ongoing diversification efforts, Oman Observer reports.
“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 VP-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.”
Trends and cycles in hydrocarbon demand and prices will continue to dominate revenues and exports of GCC member states in the medium term, according to the report.
Hydrocarbons still account for at least 20% of GDP, more than 65% of total exports and at least 50% of government revenue, it said.
Perjessy noted that diversification efforts have so far yielded only limited results and will be held back by lower oil prices.
“While we expect the diversification momentum to pick up, it will be dampened by 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,” the report pointed out.
The importance of hydrocarbons in GDP and government revenue has not changed materially since 2014, having declined mainly due to lower oil prices.
Hydrocarbons will continue to drive GCC sovereigns’ fiscal strength, liquidity position and external vulnerability for many years, it added.