Dubai: GCC countries are expected to face significant drain on both external and fiscal surpluses as they face squeeze on revenue from oil income, the International Monetary Fund (IMF) said in tis outlook report.
Under the current oil price assumptions, the fall in anticipated oil export earnings in 2015 is $287 billion (Dh1.05 trillion, 21 per cent of GDP) in the GCC and $90 billion (11 per cent of GDP) in the non-GCC countries of the Middle East and North Africa region. The oil price decline will turn the long-standing current account surplus of Middle East oil exporters into a deficit of $22 billion (1 per cent of GDP) in 2015.
Surpluses are expected to return gradually over the medium term, reaching 3.5 per cent of GDP by 2020, as a result of both higher oil prices and projected fiscal consolidation.
Fiscal balances in the region are also severely affected by lower oil prices. In the GCC, a combined budget surplus for 2014 of $76 billion (4.5 per cent of GDP) is expected to turn into deficit of $113 billion in 2015, narrowing only partly over the medium term to 1 per cent of GDP.
“In the GCC the fiscal deficit is expected to average around 8.5 per cent in 2015 and we expect only Kuwait and Qatar to avoid a budget deficit situation this year,” said Masood Ahmed, Director Middle East and Central Asia Department, IMF.
Non-GCC countries already posted a fiscal deficit of 4.8 per cent in 2014, which is expected to widen to 9 per cent of GDP in 2015, before stabilising at 2.5 per cent of GDP in the medium term.
“A sharp rise in spending in recent years has made budgets vulnerable to lower oil prices. Most countries in the region cannot balance their budgets when oil prices approach $60 per barrel,” said Ahmed.
A long-term decline in oil prices reduces the real income of oil exporters and requires fiscal consolidation plans to be brought forward. In the GCC, large buffers and available financing allow the adjustment to be gradual. However, a number of countries have initiated measures to rationalise energy subsidies.
Across the GCC government spending is a key driver of noil growth and thus fiscal consolidation should be done in a growth-friendly manner, according to the IMF. This can be achieved by limiting spending overruns and slowing the growth of public wage bills and other current expenditures and ensuring the productivity of capital spending.
Reducing generalised energy subsidies — which remain large despite lower oil prices — while increasing targeted social subsidies, would also help raise government revenues and discourage inefficient use of energy. “Delaying such reforms will most likely require a more abrupt and costly adjustment in the future. Most countries have already initiated reforms to their subsidy systems,” said Ahmed.
