THE LEVANT – Gulf Arab oil exporters face inevitable spending cuts as weak oil prices cloud their economic outlook, Kuwaiti Finance Minister Anas Al Saleh said on Saturday.
“We must undertake comprehensive economic reforms including the reform of imbalances in public finances,” Al Saleh told a meeting of Gulf Arab finance ministers, central bank governors and the International Monetary Fund in Kuwait.
“This must be undertaken through strengthening of efforts to diversify away from oil and decrease dependence on oil revenue, which is now inevitable,” he said.
Oil prices have tumbled to four-year lows of below $83 per barrel this month, exposing swollen state budgets in the six-member Gulf Cooperation Council (GCC) that also includes Saudi Arabia, the United Arab Emirates, Qatar, Oman and Bahrain.
After years of breakneck government spending rises, the GCC budgets now require a much higher average oil price to break even. The recent drop, if sustained, could erode the large fiscal surpluses enjoyed for years.
This is a particular threat to small oil exporters such as Oman, which the IMF expects to tip into a budget deficit of 1.8 percent of gross domestic product in 2016, and Bahrain, which could tumble deeper into the red with a 5.7 percent gap already next year.
Even oil giant Saudi Arabia may run a budget shortfall of 1.3 percent of gross domestic product (GDP) in 2017, which would be its first since the global financial crisis slashed its crude export revenue in 2009.
The Gulf states have mostly accumulated vast reserves over the oil-boom years that enable them to keep spending up even if oil prices stay weaker over a longer period. Very low levels of public debt should also give them the comfort of a relatively easy access to the debt markets if needed.
Kuwait has already revealed plans to slash costly subsidies on diesel, kerosene and jet fuel with electricity and water costs also under scrutiny. Less oil wealthy Oman has said it was considering cutting subsidies on petrol.
Economic growth in the GCC region is expected at around 4.5 percent on average in 2014, 2015 but downward risks were elevated mainly because of weaker oil prices, Saleh also said.