DUBAI: Gulf economies are on course to achieve better-than-projected budget figures in 2009 as higher world crude prices offset the global credit crunch, a study said.
But oil production cuts mean three of those major oil producers — Kuwait, Saudi Arabia, and the United Arab Emirates — will still see their overall economies contract this year after expanding rapidly in recent years on the back of record oil prices, according to the analysis.
“The strengthening in oil prices will be extremely positive for the hydrocarbon-dependant GCC (Gulf Cooperation Council) countries, which will see high oil revenues,” EFG-Hermes investment bank said in a report received Monday by AFP.
“We have revised upward our GCC macro forecasts in line with the changes in our oil price forecasts. The majority of the headline figures, including nominal GDP (gross domestic product), and the fiscal and current account, will see an improvement,” said the Egyptian-owned bank which has major operations in Dubai.
Saudi Arabia, the world’s largest oil exporter, is now expected to register a small budget surplus equivalent to 0.6 percent of GDP, the bank said, after initially forecasting a deficit of 4.8 percent compared with a 33.6 percent surplus last year.
The Saudi budget’s break-even oil price is set at below $60 a barrel, which is the EFG-Hermes average crude price forecast for this year.
Kuwait, Qatar and the United Arab Emirates were already projected to register fiscal surpluses this year as their break-even oil price was set below $50, the bank said. Standard and Poor’s credit watch on Friday also said it now expects the Saudi budget to roughly balance this year after the government projected a deficit of 8.0 percent of GDP.
Crude prices tumbled from around $140 a barrel in July last year to below $40 by the end of 2008 and are currently around $70.
Bahrain and Oman, which have dwindling oil resources, are still expected to register deficits as they need an oil price of $70 for their budgets to balance.
Gulf governments have boosted spending to stimulate their economies amid the global financial slowdown which has triggered a shortage of credit to the private sector. But despite these expansionary fiscal policies, the International Monetary Fund believes that the Kuwait and UAE economies will shrink by 1.1 percent and 0.6 percent respectively, according to figures posted on its website.
EFG-Hermes forecasts GDP contractions to be much greater in those economies, predicting the Kuwait economy will shrink by 3.8 percent and UAE by 4.0 percent.
Those OPEC majors are facing a drop in oil revenues due to the lower prices and a fall in production due to a demand shortage.
In addition, the UAE economy in particular is suffering the impact of the real estate crash in Dubai, where rapid growth over the past few years was fueled by the overheated property sector.
Gas-rich Qatar will meanwhile defy the trend to grow by 6.4 percent. Bahrain and Oman will also grow by 2.1 percent and 4.1 percent respectively, according to EFG-Hermes’ study.
