DUBAI: The Arab energy exporting states of the Gulf can cope comfortably with sliding oil prices, an International Monetary Fund official said yesterday, as a plunge in regional stock markets showed some local investors were panicking.
Brent crude oil dropped below $60 a barrel for the first time since 2009, from around $115 as recently as June. If those levels persist next year, the six rich nations of the Gulf Cooperation Council will face the most dramatic change in their fortunes since the global economic crisis in 2008. All except Qatar would run state budget deficits as oil revenues shrank; Bahrain and Oman would be deep in the red.
Harald Finger, the IMF’s head of mission for the United Arab Emirates, told a financial conference in Dubai that because the big GCC economies had built up huge fiscal reserves, they would not have to cut state spending deeply, and could therefore avoid sharp economic slowdowns.
“Most of the GCC countries have quite significant buffers in the form of foreign assets in sovereign wealth funds or central banks, plus most of these countries have a capacity to borrow, so there is no need now for a very steep and quick reduction of spending, which would not necessarily be desirable,” he said.
But as he spoke, GCC stock markets were tumbling in a rout which erased about $49bn of market value yesterday alone.
Finger said the UAE might have to tap into its store of foreign assets to sustain government spending if oil prices stayed at current levels or went lower.
Abu Dhabi’s largest sovereign wealth fund is believed to have nearly $800bn of assets, roughly twice the UAE’s entire annual gross domestic product, so it could cover many years of budget deficits. Senior economic officials from the two biggest emirates in the UAE, forecast their economies would stay strong. Abu Dhabi predicted average growth of 5.5 percent annually between 2014 and 2018; Dubai forecast rates above 4.5 percent. So far, international investors appear to agree that the big Gulf economies can ride out an era of lower oil prices without facing debt crises or steep reductions in their economic growth.Reuters
