Abu Dhabi: Despite the continued low prices of oil, GCC countries for the time being are well prepared to handle the fallout, thanks to well-planned policies that have been implemented, a senior member of the International Monetary Fund (IMF) has said.
The second day of the Abu Dhabi Strategic Debate saw a number of key topics discussed, among them the impact of low oil prices on the global economy and how this affects countries largely reliant on the export of oil.
“Oil-exporting countries that prepared well during the good times when oil was priced at $100 [Dh367.30] a barrel and above, are unlikely to see a major drop in income and power in the world economy, and most of the GCC countries, I would say, fall into this category,” said Jeffrey Franks, director of the IMF’s Offices in Europe and the fund’s senior resident representative to the EU.
“GCC countries have set aside considerable resources in sovereign wealth funds that they can now draw on to continue funding and investing in education programmes, and other social benefits for [their] citizens,” he added.
Countries, on the other hand, that are not as well prepared to handle the low prices in oil are more likely to struggle in the current climate, he explained.
Mohammad Al Sabban, the former senior adviser to Saudi Arabia’s petroleum minister, echoed similar observations and said that reports of Saudi Arabia going into bankruptcy have been off the mark.
“The Kingdom of Saudi Arabia has great financial reserves that can help cover the drop in revenue from oil exports. We must also bear in mind that the country’s public debt is also not large, and the deficit is very low and is manageable at the moment,” he said.
“Corrective financial measures are also being carried out [at a] budgetary level to curb expenditure and spending to make sure the deficit remains low,” Al Sabban added.
According to Franks, while GCC countries are well equipped in the medium term, smart budgetary policies need to continue being put in place to manage in the long term.
“We don’t predict the bankruptcy of Saudi Arabia [or other GCC states], but what we have said is that many oil-producing states in the Middle East base their budgets on oil expenditures to sustain the budget, and now the price of oil is well below the breakeven price, so this creates challenges,” he said.
Al Sabban also explained that GCC countries should rely less on oil dependence as low oil prices were here to stay for the time being.
“Demand for oil is down and this is why the price of oil has decreased, the world has started to adapt to lower demand of oil, so I believe GCC countries should move towards diversifying their resources and economy for the future,” he said.
