Higher Oil Revenues Not to Spur Persian Gulf Growth

Rising oil revenues are improving the outlook for budget and trade balances among Persian Gulf Arab countries, but will do very little to boost economic growth, a quarterly Reuters poll of economists showed.

The benchmark Brent oil price has averaged about $71.60 a barrel so far this year, up from $55 last year.

Also, Persian Gulf states are set to export more oil this year after global producers agreed last month to boost output, partly to compensate for anticipated losses in production by Iran.

That is a boon for state finances and external surpluses across the region, especially in Saudi Arabia, the top exporter. Saudi investment bank Jadwa forecasts Riyadh’s oil revenues at $154 billion this year, instead of the $131 billion that the government budgeted last December.

In the poll of 24 economists, the median prediction for Riyadh’s state budget deficit this year was 4.8% of gross domestic product, instead of the 7.8% they forecast in the last poll.

A 4.8% deficit, while still unsustainable for Saudi Arabia in the long run, would be the smallest since 2014, when an oil price plunge began to pressure Riyadh’s finances. The latest poll predicts next year’s deficit at 4.5% of GDP, instead of 6.7% previously forecast.

Fiscal forecasts for the other five (Persian) Gulf Cooperation Council states have also improved. The UAE is now seen enjoying a state budget surplus of 0.1% of GDP this year instead of a 2.9% deficit; the forecast for 2019 has switched to a 1.4% surplus from a 2.2% deficit.

Similarly, current account surpluses for the four strongest (P)GCC economies, namely Saudi Arabia, the UAE, Kuwait and Qatar, are expected to swell.

However, the improvements look likely to have little impact in raising modest economic growth in the Persian Gulf, the latest poll showed.

Private sectors are still struggling with government austerity steps such as tax rises and spending curbs, and because governments are expected to use much of their windfall oil revenues to cut deficits rather than stimulate growth.