The Arab world’s energy exporting states are not saving enough of their oil windfall and as a group may start running a fiscal deficit in 2016 if current policies do not change, the International Monetary Fund said yesterday.
“Together with substantial oil revenue risks, this prospect underscores the need for countries to build or strengthen their fiscal and external buffers,” the IMF said in a report.
In 2012, total state spending in the six Gulf Cooperation Council members – Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain – climbed 9.7 per cent, a Reuters calculation based on IMF data shows.
That is much less than the 17.7 per cent jump in 2011, when governments boosted social welfare and infrastructure spending to ease social tensions during the Arab Spring uprisings.
The IMF expects growth in the GCC’s state spending to slowfurther in coming years; it forecasts an average rise of just over 4 per cent annually in 2013-2018, compared to the 15 per cent clip seen over the last decade, its data shows.
But on current indications, this spending restraint will not be enough to prevent state budgets in many countries from going into the red, the IMF predicted.
Bahrain is currently the only GCC country in the red; it is expected to be followed by Oman as soon as in 2015, and Saudi Arabia in 2018.
The combined budget surplus of 11 Arab oil exporters, including those in North Africa, is now projected to decline to 4.2 per cent of gross domestic product in 2013 from 6.3 per cent last year.
In April this year, the IMF projected a 4.7 per cent surplus for 2013.
Even as spending grows too fast, revenues are threatened by the risks of lower oil prices and a drop in global demand for Arab oil, the IMF added.
Oil export receipts account for over 80 per cent of government revenues in the region and the IMF said the most important threat to revenues was now the possibility of excess supply in the global oil market.
Most Arab oil exporters now need an oil price above $90 to balance their budgets at forecast production levels, the IMF said, adding that rising volatility in oil production meant uncertainty over revenues would increase.