Moody’s, the credit rating agency said the level of inflation in the Gulf Cooperation Council countries rose more moderately compared to other countries, indicating that Kuwait ranked third at the level of the GCC countries in the rise of inflation which recorded 4.5% on an annual basis until last May, compared to 5.7% in the UAE and 5.4% in Qatar, while the inflation rate in Oman is 3.5 percent, Bahrain is 2.9 percent, and Saudi Arabia it is 2.3 percent.
Moody’s stated in a report that, based on the latest available data, the average consumer price inflation in the Gulf economies reached 3.8 percent in May up from 1.7 percent in 2021, reports a local Arabic daily.
It is expected that inflation rates in the Gulf Cooperation Council countries will remain below global averages for two reasons — the first is that the long-term peg of the region’s currencies to the US dollar will continue to isolate its countries from the additional inflationary pressures that most other regions have been subjected to as a result of the devaluation of the currency, as the weakness of most emerging market currencies has led compared to the dollar (7 percent on average) during the first six months of the year.
The increase in domestic prices for commodities such as crude oil and grains that are usually traded in dollars was exacerbated by the exacerbation of the increase in domestic prices, as for the Gulf economies, the dollar peg remained the same.
Moody’s indicated that the strong current account surpluses in the Gulf countries, according to the agency’s expectations, will continue during the next two years due to the rise in oil prices, which will support the sustainability of the dollar peg.
It is likely that Kuwait will achieve the highest annual increase in oil revenues at the level of the Gulf economies, reaching 15 percent of GDP, while it expected that in Saudi Arabia and Bahrain it will reach about 5.5 percent of GDP, 9 percent in Oman, 10 percent in Qatar and 11 percent in the UAE, based on Moody’s assumption that the average oil prices will be around $105 a barrel this year.
Moody’s added that significant revenue gains would finance other fiscal measures taken by Gulf governments to mitigate the effects of rising global inflation on purchasing power, which would support domestic demand and contain the increased social and political risks apparent in much of the Middle East and Africa without eroding merit credit of the Gulf economies.
The agency pointed out that Saudi Arabia recently announced that it will allocate an additional 20 billion riyals ($5.3 billion, or 0.5 percent of GDP) this year to support low-income families “to face the repercussions of rising prices globally” and build a strategic stockpile of basic commodities.
In UAE the annual financial support for low-income Emirati families amounted to 14 billion dirhams ($3.8 billion, or 0.75 percent of GDP), and Kuwait launched a new support package for retirees worth $1.6 billion (0.8 percent of GDP), explaining that these spending increases during 2022 will be offset by significant increases in revenue, and therefore will not erode sovereign creditworthiness unless it continues beyond the current period of high commodity prices.
Moody’s believes that the exceptional financial gains for the Gulf countries will help maintain the ceiling of domestic fuel prices, which has included the impact of high crude oil prices on inflation rates in the Gulf countries so far, giving an example in Kuwait, where gasoline prices have been fixed locally since 2016, while Bahrain raised the gasoline prices last time in January 2018, Saudi Arabia, then Oman and Qatar suspended the retail price adjustment mechanism for gasoline in July and October 2021, respectively. In contrast, the UAE only continued to increase gasoline prices in line with international prices for crude.