The population in the Gulf Cooperation Council (GCC) states declined by about 4% last year due to an exodus of expatriates after the coronavirus crisis and lower oil prices, S&P Global Ratings said in a report on Monday.

The oil producing region was hit hard last year as COVID-19 restrictions impacted non-oil economic sectors, and lower oil prices and crude output cuts weighed on its main income source.

“We expect the proportion of foreigners in the region will continue to decline through 2023 relative to the national population, because of subdued non-oil sector growth and workforce nationalization policies,” S&P said.

Gulf states rely heavily on foreign workers in sectors ranging from financial services to healthcare and construction, but efforts to nationalise the workforce to fight rising unemployment among nationals have accelerated in recent years.

The overall GCC population is unlikely to return to 2019 levels of 57.6 million people until 2023, S&P said.

“These changes could have repercussions for the regional economy and pose additional challenges to diversifying away from its heavy reliance on the hydrocarbon sector in the long run, if not met with economic and social reforms that foster human capital,” it said.

S&P estimated the sharpest population decline last year occurred in Dubai, the Middle East business hub, where the impact of the pandemic on key employment sectors like aviation, tourism and retail led to an 8.4% population decline.

In Oman, where the government has in recent weeks intensified a long-standing policy, known as Omanisation, to create employment for its citizens, the expat population declined by about 12% last year, the agency said.