Oil blow: IMF warns Gulf states against knee-jerk reaction

Updated 05 May 2015

Oil blow: IMF warns Gulf states against knee-jerk reaction

The International Monetary Fund (IMF) is not worried about a decline in Saudi reserves, says a top IMF official.
But Masood Ahmed, IMF Middle East and Central Asia chief, points to a midterm need for fiscal adjustment and development of the local capital market.
GCC states should “not react in a knee-jerk way to lower oil prices,” he said in published remarks.
An IMF team will visit Saudi Arabia this month to assess government plans, Bloomberg quoted him as saying.
Ahmed also said it was too early to assess the impact on Saudi Arabia from the campaign against Houthi violence in Yemen, but said the Kingdom’s financial buffers will help meet the cost.
“It will be one source of additional pressure,” he said in an AFP report, adding however that the “Saudi government has the financial reserves to be able to underwrite the budget deficit.”
According to Bloomberg, the IMF projects Saudi Arabia’s nonoil economy will grow at 4.6 percent this year, down from 5 percent last year and 6.5 percent in 2013.
Ahmed’s remarks came as the IMF released its Regional Economic Outlook Update.
It covers the Middle East, North Africa, Afghanistan and Pakistan.
The report said: “In the GCC countries, growth is forecast at 3.4 percent in 2015, revised downward since last October by 1 pp, mainly because of a slowdown in nonoil growth in response to lower oil prices. In Saudi Arabia, the growth forecast for 2015 is now 3 percent, down 11⁄2 pp from last October, although half of this revision owes to the rebasing of real GDP data.”
The oil price decline has affected financial markets in oil exporters in the region, said the report.
In the GCC, it said that inflation is expected to decline by 1⁄2 pp to just above 2 percent because of strengthening currencies (pegged to the US dollar) and declining food prices. Lower oil prices are unlikely to affect inflation significantly, because most countries use administered prices for fuel products.
According to the report, the current oversupply in the global oil market suggests that GCC may face challenges in maintaing market share, with potential downside pressures on oil production. Government spending and hence nonoil activity may slow down by more than expected. However, a faster- than-expected recovery in oil prices would support government spending and nonoil growth. Overall, the risk of volatility in oil prices has risen, at least in the short term, because of complex interplays between traditional and shale oil production and geopolitical risks.
Under the current oil price assumptions, the fall in anticipated oil export earnings in 2015 is $287 billion (21 percent of GDP) in the GCC and $90 billion (11 percent of GDP) in the non-GCC countries.
In the GCC, a combined budget surplus for 2014 of $76 billion (41⁄2 percent of GDP) is expected to turn into deficit of $113 billion (8 percent of GDP) in 2015, narrowing only partly over the medium term to 1 percent of GDP.
Gulf oil exporters must reduce spending, including subsidies, and diversify their economies to cope with lower revenues caused by the sharp drop in crude prices, the International Monetary Fund said.
They would be better off to “adjust gradually” using the large financial reserves they have accumulated during several years of bumper oil receipts, he said in Dubai.
But as oil prices have dropped lower than budgeted breakeven levels, “it is important that they gradually, but in a determined way... reduce their spending (and) consolidate their fiscal position,” Ahmed said.
Oil prices have shed half of their value since June 2014, and are expected to be lower than the breakeven point for Gulf countries in the next three to four years.
The Gulf Cooperation Council includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates — economies all heavily dependent on energy revenues.
A combined budget surplus for 2014 of $76 billion (68.5 billion euros) is expected to turn into a deficit of $113 billion this year, the IMF said in its latest regional report.
“They need to act to reinforce their efforts to diversify their economies to become less dependent on oil,” said Ahmed, pointing out that many have already taken such measures.
“The UAE is more advanced in terms of diversification. The others also are in varying degrees trying to encourage private sector activity outside the oil area.”
The IMF urged GCC countries to cut energy subsidies in a bid to minimise public spending and trigger a change in consumer behavior.
“Most GCC countries still have the domestic sale price for energy products below the international prices... We think that over time it is important to tackle the issue of energy subsidies to reduce them,” Ahmed said in the AFP report.
Gulf states should also contain salary growth in the public sector, which usually employs nationals as opposed to the private sector that depends on millions of foreigners.
In addition, GCC countries would need to prioritize investment projects that “most advance the development agenda,” said Ahmed.
Oil-export revenues for GCC countries are forecast to be $280 billion lower this year than a year ago.
With the exception of Qatar and Kuwait, all GCC states are expected to face budget deficits this year, said Ahmed, adding this could persist for two or three years.
“The important thing to recognize is that GCC countries have built up financial buffers that put them in a very strong position to be able to use these savings to finance expenditure and to have a gradual decrease in spending over the coming years,” he said.
This in turn would minimize the economic impact of the drop in oil prices.
GCC states are estimated to have foreign reserves of about $2.5 trillion.
“The impact on (economic) growth is quite limited,” said Ahmed.


Saudi health teams invited to Moscow lab to assess Russia’s new coronavirus vaccine

Updated 15 August 2020

Saudi health teams invited to Moscow lab to assess Russia’s new coronavirus vaccine

  • In an exclusive interview with Arab News, CEO Kirill Dmitriev explained the reason for the rapid registration of the vaccine, and why he thinks the West has been less than welcoming to this potential breakthrough against the pandemic

DUBAI: Last week, Russia surprised the world by announcing that it had developed and authorized production of a vaccine — Sputnik V — to combat COVID-19. Many experts and media commentators criticized the Russians for being quick to claim credit for the first vaccine at the expense of sufficient testing, specifically phase 3 testing on humans.

The Russian Direct Investment Fund (RDIF) played a key role in developing Sputnik V. In an exclusive interview with Arab News, CEO Kirill Dmitriev explained the reason for the rapid registration of the vaccine, and why he thinks the West has been less than welcoming to this potential breakthrough against the pandemic.

AN: Have you been surprised by the reaction in some parts of the international media?

KD: We understood that the world would be divided. There has been a division between ordinary people who want the vaccine and who understand it’s good news in all countries. And also some politicians, some pharma companies and some media, there’s a division there.

Then there’s a division between countries. We’ve seen a very negative, I’d call it very jealous reaction in the US, the UK and some other places in Europe. But we’ve seen very positive reaction in the Middle East, in Asia, and extremely positive reaction in Latin America. I think the reaction is different in those geographies, and we were expecting this.

I think it’s very important to understand the position of Russia. We aren’t forcing our vaccine on anyone. As of now only Russians will be vaccinated, but we just want to share the fact we have this technology. There are some unique features. Maybe I can go into why we did it, how we did it so quickly and the science behind it.

We saw that some countries would want to explore it, would want to do it. But other countries, just because it’s Russian they have a mental block on anything that’s Russian. I have this analogy: If we were to offer to distribute water to the US, we’d get articles in the media that maybe it’s poisoned, or the recipe is stolen, or maybe it has some vodka in it.

AN: But some of the scientific criticism focused on the very rapid development of Sputnik V and lack of data.

KD: Some of the points are legitimate, and they’ll be answered by data we publish in August. In all the criticism, there’s a valid point about making data available, and I wish we could’ve done it earlier. But data will start to become available at the end of August, and it will be published — data about phase 1, phase 2, animal studies etc. And we’ve already started doing phase 3. So more data will be coming out, and it’s a fair criticism.

We know the technology works, and let me go into what’s unique about it. Russia has always been very strong in vaccines. Catherine the Great was vaccinated 30 years before the first American vaccine appeared — 1762 I think it was . And the Soviet Union was always strong in vaccines.

On this specific vaccine, basically our scientists had a head start. They were working on the Ebola vaccine, which got approved, then they used the same method — human adenovirus vector — on the MERS vaccine. When coronavirus appeared, they just happened to have this proven platform. MERS is very close to coronavirus, and they were able to use an already proven and researched platform. 

This adenovirus vector stuff is basically the human adenovirus vector. It has been studied in the world the last 20 years. There have been dozens of studies, tens of thousands of people, and it has been proven that human adenovirus is safe and doesn’t have long-term consequences.

It’s very different from mRNA, very different from monkey adenovirus, which haven’t been studied for 20 years and haven’t been the subject of dozens of clinical studies. Frankly they’re novel approaches, and we hope they work, but they’re much less studied approaches. So the fact we had this proven platform allowed us to move forward.

AN: Why not wait until the end of August to announce it when all the data could be made available?

KD: There’s an ethical responsibility that once you have a technology that you know works, to make it available to people in a safe manner. It’s irresponsible to delay something that you know works and then deny it to people who need protection.

We want all countries to do all the necessary checks. Our Ministry of Health has done it for Russia, and they determined that the vaccine is safe and efficient. And when they determined that, they wanted to make it available to Russian people right away. People are dying from coronavirus and we want to protect them. There was a clinical and human need.

AN: What about the lack of phase 3 tests?

KD: We have a law in Russia that at a time of epidemic you’re allowed to do phase 3 concurrently while administering the vaccine to people. Basically it’s invoked only for technologies that’ve been proven to be safe before.

So if we were to try to use mRNA or monkey adenovirus, it has never been shown to be effective before, and we’d never have done it without phase 3. But we have the vaccine already approved, based on Ebola, so we have data for the last six years and the world has data for the last 20 years of studying human adenovirus vectors.

Let me try to explain it very simply. You can think of vaccines as just coming in two parts. You have a code for the spike of coronavirus that needs to be delivered to cells so that antibodies get produced. Pretty much all the vaccines, simplified, more or less, have the same spike.

So the only thing that matters and is different is the delivery mechanism. Our delivery mechanisms are based on human adenovirus, which has been proven before to be safe long term. There have been studies for example that show it doesn’t cause cancer, over the past 20 years.

So we used technology safe and proven before to deliver the spike of coronavirus. So once you understand the science, you basically say, ‘OK, what could go wrong?’ Most of the problems that could go wrong come from the delivery mechanism.

For example, AstraZeneca (the multinational pharmaceutical group also working on a vaccine) uses monkey adenovirus, which has never been studied long term in the human population. So that’s very different, which the West is missing. mRNA (an alternative vaccine technique under development in the West) had never been studied before.

So it shows that the stuff that was approved in Russia, safe and chosen before, just delivers a spike of coronavirus. 

AN: Can you tell me more about the agreement you have with Saudi Arabia to do tests there?

KD: We have an agreement in principle to have clinical trials in Saudi Arabia. We’ll have a visit by the Saudi Health Ministry to the Gamaleya Institute, which is part of the process. We already have a partner in the Kingdom, a very good Saudi company. I shouldn’t name them. It’s an experienced pharma company that’s working with us, and we’ve already shared phase 1 and 2 data with our Saudi partners.

We believe in a real strategic partnership with Saudi Arabia on the vaccine. We know that lots of countries look up to the Saudi position and their approach, and we’ll really engage with Saudi scientists, the Saudi Health Ministry, in the very deep understanding of our technology. We believe that Saudi will be a very strong partner for our joint work on the Sputnik V vaccine.

We’ve also shared data with the UAE. We expect to start trials there in August.

We expect to have clinical trials in Saudi, the UAE, the Philippines and Brazil, as well as Russia.

AN: So you have your vaccine. Do you care whether the rest of the world takes it up or not?

KD: Of course, our priority is the safety and security of our people, and we have a safe vaccine. Vaccinating our people will start massively in October. If it’s just Russia that gets vaccinated, it’s a great accomplishment because we gave the vaccine earlier and saved more lives. It’s very important to save our people.

Our other responsibility is to share with the world, openly, what we have and what we know works. It’s up to individual countries to explore it. If they want to take it or not take it, we won’t care so much because we aren’t going to do this for profit.

It’s on a not-for-profit basis, just to cover our expenses on the vaccine and cover our costs. This isn’t a money maker. It’s a humanitarian initiative. It’s our responsibility to tell the world we have it, this is how it works, and you have Sputnik V that has all the information, and more will be published. With that, we feel our responsibility to the world is complete.

We have requests already for 1 billion doses of vaccine. It’s huge. If other people show interest, it’s our responsibility to make it available, then we’ll work with five other countries to produce the vaccine and make sure we distribute it to countries that want it.

We aren’t trying to convince the US. We aren’t trying to convince Europe. We fulfilled our responsibility by developing it, vaccinating Russian people, letting other people know we have it, and letting countries that want it manufacture it in partnership with them.

We’re trying to do as much as we can without forcing this on anybody or trying to convince anybody.

AN: How much will it cost per dose?

KD: We’ll be able to talk about that in September or October because we’re scaling up manufacturing outside Russia and we want to get to the lowest price point, and we need to get to manufacturing in scale. We need a couple more months to do this.

All I can say now is that pricing will be very competitive. From some other estimates we saw from other people, we expect our pricing will be lower than we saw others circulate.