Persian Gulf Cooperation Council countries may see their current-account surplus decline by $175 billion next year if oil prices stay about $80 a barrel, according to the International Monetary Fund.
The projected surplus for the six (P)GCC countries may plunge from $275 billion to about $100 billion next year, Masood Ahmed, director of the Middle East and Central Asia department at the IMF, said in an interview in Dubai. The extended drop in prices would also “translate into an 8 percent reduction in the fiscal revenues of the (P)GCC as a whole,” Business Intelligence Mideast quoted him as saying.
The price of Brent crude, the benchmark for more than half of the world’s oil, has dropped about 25 percent from this year’s high in June, trading at $85.95 a barrel in London. Brent will trade at an average of $85 a barrel in the first quarter, down from a previous projection of $100, Goldman Sachs Group Inc. analysts wrote in a report.
Oil exports make up the bulk of government revenue of (P)GCC countries – Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Bahrain and Oman. A surge in oil prices over the past decade has helped fuel hundreds of billions of dollars in spending on projects including roads, airports, ports and houses.
“There is an immediate impact from the drop in oil prices,” Ahmed said.
In the IMF scenario, Saudi Arabia, Oman and Bahrain risk running a budget deficit next year if their spending plans don’t change to cope with the declining crude prices, he said.
Venezuela and not Saudi Arabia possesses the largest crude oil reserves, with 17.7 percent of the global reserves compared to Saudi’s 15.8 percent.
Economic Environment
Against the backdrop of an uncertain oil market, adjustment efforts in the (P)GCC countries are being implemented within an international economic environment which is undergoing fundamental changes on several fronts. Two trends are of particular importance:
• First, the ongoing global trade liberalization is expected to gradually lead to lowering of tariffs; dismantling of nontariff trade barriers; reduction in producer subsidies; expansion of trading blocks; and the strengthening of the institutional framework under the auspices of the World Trade Organization.
• Second, the continuing globalization and integration of financial markets will further facilitate private capital flows and create new financing options for many developing countries, along with greater risks.
There would naturally be short-term costs associated with the resulting resource reallocation, but these trends also offer significant potential for welfare gains in developing countries if proper conditions are in place. The basic and perhaps the most important requirement is a stable domestic macroeconomic setting.
Within this framework, a large and adaptable trade sector and a sufficiently diversified economic base would be required in order to benefit from a rapidly changing international trade environment. Moreover, the benefits to the economy from closer links to international capital markets could only be maximized through a diversified domestic financial sector and open and well-functioning markets which are well supervised and regulated.
