Published — Wednesday 30 January 2013
Last update 31 January 2013 3:27 am
DUBAI: Most Gulf oil exporting countries' budget surpluses will shrink this year when heavy government spending and lower crude oil prices trim their economic growth rates, a Reuters poll showed yesterday.
Across the Gulf, governments have boosted spending on welfare as unrest gripped the Arab world. They are also spending more on development projects to try to cut their reliance on oil.
Saudi Arabia raised its 2013 budget by 19 percent to SR 820 billion ($ 219 billion). Actual expenditures are forecast to be some 27 percent above that, the International Monetary Fund said in October. The result of such spending will be lower budget surpluses, even if oil prices stay high.
The latest Reuters poll of 17 analysts, conducted this month, found them cutting their 2013 budget balance forecasts for five of the six members of the Gulf Cooperation Council, which comprises Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Oman and Bahrain.
But apart from Bahrain, whose public finances will sink deeper into the red in 2013, GCC countries are still expected to maintain substantial surpluses.
In Saudi Arabia, the fiscal surplus should halve to 7.1 percent of gross domestic product this year from an estimated 14.2 percent in 2012, the poll showed. The 2013 forecast is below the 8.9 percent predicted by the previous Reuters survey in September.
Kuwait is projected to post the largest surplus, of 20.0 percent of GDP for its next fiscal year, which will start in April. That is below an estimated 25 percent of GDP for the current fiscal year, when a political crisis delayed spending on development projects.
"For the GCC as a whole, the fiscal surplus could halve over the next couple of years, but it should still be fairly high. We are still talking about 5 percent of GDP overall and in some countries even bigger," said Daniel Kaye, senior economist at National Bank of Kuwait.
"Given the uncertainties in the global economy as well as domestic pressures, governments will want to keep spending at fairly elevated levels in order to support growth."
But the world economy should perform slightly better this year because recovering growth in Asia will gradually overpower the political and economic malaise in the West, according to a Reuters poll published last week.
Oil and gas revenue provides most of the budget income of Gulf states, and analysts predict it to be slightly lower in 2013 because of a slightly softer outlook for the world oil market.
"The average oil price is forecast to decline in 2013 as the oil market becomes less tight with rising production from outside the GCC," said Giyas Gokkent, chief economist at National Bank of Abu Dhabi.
"The GCC oil output path in the near term will depend on whether Iranian sales further decline or not," he said, in reference to the impact of international sanctions against Iran over its disputed nuclear program.
Since September's poll, Brent crude has held relatively steady between $ 107 and $116 per barrel. A separate Reuters survey this week showed analysts believe oil prices will average $110 per barrel this year.
That is too low for small Bahrain. Analysts estimate it needs a higher average oil price to balance its budget, by far the highest level in the Gulf.
As a result, the budget gap of Bahrain, which has been hit by political unrest since early 2011, should widen to 4.5 percent of GDP in 2013 from an estimated 2.7 percent last year, the poll showed.
Lower oil prices are expected to hit the GCC's economic growth rates in 2013, but growth should remain quite strong thanks to robust consumer and government spending.
"The GCC region does not need to increase their production to make up loss in other parts," said Selim Cakir, chief economist for Turkey and Gulf countries at BNP Paribas.
"Nonoil activity will remain robust...Nevertheless we think GDP will slow down slightly. We are not pessimistic about growth prospects, we just think it's a natural correction of the past year's high oil growth numbers."
Saudi economic growth should ease to 4.0 percent in 2013 from 6.2 percent last year, below an average of 4.9 percent seen over the past five years, the poll showed.
In the UAE, which has been recovering from a corporate debt crisis, growth is expected to decelerate to 3.0 percent from an estimated 3.5 percent in 2012. In a September poll growth was predicted to be 3.5 percent this year.