News - Middle East: Fitch credit rating agency reported that the extended impact of the Covid-19 pandemic and the sharp drop in oil prices last year will lead to deficits in most Gulf governments.

It is expected that countries in the region will witness improvement in their financial conditions thanks to the recovery of oil prices and the easing of production restrictions, but the deficit will remain large, especially in Kuwait and Bahrain.

"We expect only Abu Dhabi and Qatar to achieve fiscal surplus," Fitch said in report.  The agency expected Abu Dhabi to record 1.1 percent fiscal surplus and Qatar to record 2.4 percent of GDP.  While it expected Saudi Arabia, the largest economy in the Gulf, to suffer deficit of 5.3 percent.

The high oil prices needed to achieve a fiscal balance show the size of the fiscal reform challenges, and most of them remain much higher than the current or expected oil prices. Fitch's estimates indicated that Bahrain needs price of about $ 100 barrel to achieve balance in the 2021-2022 budget, Kuwait needs more than $ 80, and Saudi Arabia and Oman need about $ 70.

Besides oil revenues, the Coronavirus continues to put pressure on the coffers of Persian Gulf states, and some countries have re-imposed restrictions on economic activity. "A new wave of infections continues to impede growth in income from abroad, public finances, employment and domestic product," Fitch said.