Arab fiscal gap shoots up to $17b

Arab states plunged back into a high fiscal gap of more than $17 billion in 2001 after a surge in crude prices in 2000 flushed their coffers and enabled them to slash the deficit to one of its lowest levels, according to official figures.

Gulf Arab countries were the main victims in 2001 as they heavily rely on crude export earnings and they were unable to go further in spending cuts to avert hurting growth.

Figures by the Abu Dhabi-based Arab Monetary Fund (AMF) and other Arab League institutions showed the combined Arab budget deficit stood at around $17.4 billion in 2001 compared with only $3.6 billion in 2000 and a mammoth shortfall of $30.2 billion in 1999.

The deficit was even higher in 1998, when oil prices collapsed to just $12.

Last year's actual deficit was caused by higher spending and lower revenues, mainly oil export earnings in the UAE and the five other GCC countries.

The figures showed total Arab expenditure was hiked by around seven per cent to $211.2 billion in 2001 from $197.4 billion in 2000. Spending was increased despite a decline in revenues to nearly $193.8 billion from $202.3 billion in the same period.

The decline was underscored in the oil income which plummeted nearly $40 billion to $152 billion from a 20-year high of $191.8 billion.

The bulk of the decline was suffered by the GCC, whose income dived from around $130 billion to $106 billion.

"The decline in the oil income had an adverse impact on development, social, health and educational projects in the Arab region," the AMF said in the 2002 Arab economic report, co-prepared by the 10-nation Organisation of Arab Petroleum Exporting Countries and the Kuwait-based Arab Fund for Economic and Social Development.

It said the drop in the oil income was caused by a loss of more than $4 in the price of OPEC's basket to $23.1 from $27.6 and production cuts of nearly 3.5 million barrels per day by the 11-member cartel in its drive to prevent a price collapse.

The deficit was also cut in 2000 after Saudi Arabia and other oil producers reverted to a surplus because of higher oil revenues. In 2001, the bulk of the shortfall was recorded in the Kingdom, Kuwait and other Gulf states due to the oil price fall.

While such deficit-ridden members as Jordan, Bahrain, Tunisia, Algeria, Oman, Lebanon, Egypt and Morocco resorted to domestic borrowing to bridge the gap, the UAE and other countries continued to avoid borrowing by resorting to return from their overseas assets.

As a result, the combined Arab domestic debt grew by 8.1 per cent to $311.8 billion at the end of 2001 to reach 60.4 percent of the gross domestic product. Most of the increase was recorded in Saudi Arabia, Qatar, Bahrain, Syria and Jordan, according to the report.

It gave no debt breakdown but official Saudi figures showed the Kingdom's domestic debt stood at around SR630 billion ($168 billion) at the end of 2001, accounting for nearly 53 per cent of the total Arab domestic debt.

The report made no mention of the UAE in its debt section as it is one of the few Arab nations that are not reeling under heavy debt.