The GCC nations of the Middle East have been assessed by an international ratings agency, and it says the region faces a number of challenges.

One of the “big three” ratings agencies has fired a warning about the members of the Gulf Co-Operation Council, which includes Saudi Arabia, Qatar and Kuwait, saying subdued growth and deficits pose challenges to public finances in countries where energy prices have seen falls in recent years.

Moody’s Investors Service made the comments in its annual GCC Sovereign Outlook, issued at the start of the week. The GCC members are Saudi Arabia, Kuwait, Oman, United Arab Emirates, Qatar and Bahrain.

"We expect real GDP growth in the GCC in 2017-18 to remain weak by historical standards with an average of 1.6 per cent and ranging from 0.7 per cent for Saudi Arabia to 3.3 per cent for Qatar," Mathias Angonin, analyst at Moody's, said in the report. The ratings agency estimates the GCC's aggregate fiscal deficit will narrow to 7.5 per cent of GDP in 2017 and 4.9 per cent in 2018, from 8.8 per cent of GDP in 2016 and 8.7 per cent of GDP in 2015, mainly as a result of higher oil prices.

Challenges to fiscal deficit reduction stem from potential slipping of fiscal consolidation measures in the face of social pressures, the report said. 

Fiscal deficits will remain sizeable in Saudi Arabia, Bahrain and Oman given challenges to further consolidation from comparatively lower per capita incomes than in the higher-rated GCC members and potential social tensions, it said. 

The UAE, Qatar and Kuwait will likely record relatively low fiscal deficits of 3 per cent to 4 per cent of GDP in 2017, the report said.

Moody's projects that GCC-wide government financial assets will decline to $2.1 trillion by the end of 2017, down from $2.4 trillion in 2014. This will lead to a weakening net asset position for all GCC sovereigns but this will be most pronounced in Saudi Arabia and Oman.