ABUDHABI/JEDDAH, 23 June 2006 — The six-nation Gulf Cooperation Council (GCC) is expected to record the largest fiscal surplus in 2006 as oil prices are heading for their highest average in current prices this year.
Saudi Arabia’s surplus stood at $28.3 billion and is projected by the World Bank to remain unchanged in 2006 before climbing down to $23.9 billion in 2007.
Saudi banker Abdul Aziz Al-Mutlaq, CEO of Yazi Bank based in Bahrain, told Arab News that this surplus gives authorities an opportunity to wisely direct its utilization. “Reformers and legislators should decide on how best to spend this money in order to generate funds for future generations,” he said.
He suggests improving the regions infrastructure and services, settling public debt and to strategically manage resources.
The GCC controls nearly 45 percent of the world’s oil deposits and World Bank showed the GCC’s current account, which covers the balance between incoming and outgoing goods, services and funds, hit a record $105.7 billion in 2004 and swelled to $152 billion in 2005.
In 2006, the balance is projected to hit another record $172.7 billion before easing to around $164.9 billion in 2007, the World Bank said in a report.
The situation is in sharp contrast to the 1990s when most GCC members reeled under heavy fiscal deficits because of lower oil prices and production, high imports of goods and services, and war-related payments.
A breakdown showed Qatar recorded the highest current account surplus of around $45.6 billion in 2005 and is expected to remain with the highest surplus of nearly $51.7 billion in 2006 and $51.8 billion in 2007.
The high surplus is a result of sharp growth in the country’s liquefied natural gas exports, which have exceeded 25 million tons a year. The fiscal surplus will remain high in the next few years as LNG production is projected to peak at 77 million tons in 2011 to turn Qatar into the world’s top LNG exporter.
Kuwait had the second largest surplus of $43.3 billion in 2005 and is expected to record high surpluses of $49.9 billion and $48.7 billion in 2006 and 2007.
The UAE’s current account recorded a surplus of $22 billion and is expected to climb to $27 billion this year before slipping to $26.1 billion in 2007.
Economists attributed the relatively low surplus in the UAE compared to other Gulf states to its high imports of goods and services. The UAE was the largest importer in the Arab world last year and is expected to remain the lead consumer this year and next due to its current boom.
Oman also reaped the fruit of high oil prices, with its current account recording its highest surplus of around $7 billion in 2005. It is projected to climb to nearly $8.5 billion in 2006 and $9.4 billion in 2007.
Although this surplus was expected due to the high oil prices and the interest of the private sector, the challenge is to make the economic growth independent of oil prices, according to economist Ihsan Buhulaiga.
“Oil prices are volatile and cannot be sustained at one price. The biggest challenge for the region is to embark on programs of economic diversification and there has been variable successes with this regard among GCC countries,” he said.
He recommends adopting the model by countries which made oil revenue a fiscal strategic reserve rather than the main source. The other challenge for these countries is developing their human resource capital to make it more productive and competitive. “Economic sustainable growth is always based on the human factor. We need to look at the surplus revenue, which is expected to continue for the next few years, as a means to meeting these challenges,” said Buhulaiga.
