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GCC states set to borrow billions to fund deficits

Cumulative debt will be raised through 2020 as budget shortfalls widen

Dubai: The oil-rich states in the Gulf Cooperation Council (GCC) region could end up borrowing $285 billion to $390 billion through 2020 to contain budget shortfalls caused by lower oil prices, according to a new report.

The cumulative borrowings, which will be generated through the issuance of local and international debt/bonds, is a significant jump from the $72.1 billion raised between 2008 and 2014, noted the latest research furnished to Gulf News by Marmore, a fully-owned subsidiary of Kuwait Financial Centre (Markaz).

Between 2015 and 2016 alone, countries in the GCC are expected to register a fiscal deficit of $318 billion as a result of lower oil prices. “Prolonged lower oil prices could further exacerbate the fiscal situation,” the report said.

“Assuming low oil prices persist, public foreign assets could decline substantially over the next five years. The bulk of the financing requirement would be concentrated in Saudi Arabia, while Kuwait, Qatar and the UAE are expected to preserve the sizable foreign assets.”

The GCC states include Saudi Arabia, Kuwait, Oman, UAE, Qatar and Bahrain. Most of these economies rely heavily on revenues from oil. The price of oil has dropped significantly in recent times. After rallying to $115.19 per barrel in June 2014, Brent crude plummeted to $27.88 per barrel on January 20, 2016, posting a massive decline of about 75 per cent.

The drop has affected GCC economies, considering that the money generated from oil constitutes approximately 80 per cent of overall government revenues.

Some analysts, however, are skeptical about the assumptions raised by the Markaz research. Experts have also said that certain GCC states, like the UAE, remain resilient and are poised to weather the impact of lower oil prices. 

The International Monetary Fund had earlier said that the UAE's non-oil growth was robust at 4.8 per cent in 2014. Besides, the economy does not rely fully on revenues from crude, with the UAE’s dependency on oil estimated to be around 5 per cent of the GDP by 2021.

According to Alp Eke, senior economist at the National Bank of Abu Dhabi, while it is possible for the GCC economies to incur a net foreign asset depletion of about $390 billion and a budget deficit of $300 billion in two years, it may be difficult to determine how much money the states need to borrow to finance the shortfalls.

“The amount of debt, local and international, is near impossible to calculate. There are tons of assumptions and other factors to consider,” Eke told Gulf News.

“Plus the gap [$285 billion to $390 billion] is too wide. So, probably, they have optimistic, pessimistic oil price scenarios. Anyway, at least we are close on fiscal deficit figures. It is relatively easy to calculate fiscal deficits and asset depletion.”

In order to contain the deficits, Eke said the GCC countries may need to resort to certain measures like “improving government revenue-generation methods” like tax or fee collection, “reducing government expenditure by implementing structural reforms and issuing foreign and local debt”, among others.

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