IMF urges spending cuts in Gulf
> Modest recovery in oil prices not enough to fill financing gaps, says International Monetary Fund
DUBAI: A modest recovery in oil prices falls short of filling budgetary gaps in crude-exporting Gulf countries, the International Monetary Fund said (IMF), stressing the need to cut spending.
The price of the region’s main commodity has partially rebounded and is hovering around US$50 (RM209.90) per barrel having hit a 10-year low of less than US$30 in January, from a peak of more than US$100 in mid-2014.
The recovery “will definitely help in terms of the financial numbers for this year” for the countries of the Gulf Cooperation Council, said Masood Ahmed, the IMF’s director for the Middle East.
“But it doesn’t really change the fundamental outlook for GCC countries or the challenges that face them,” he told AFP in an interview Tuesday.
Oil was expected to stabilise at around US$60 per barrel in the medium term, he said, a rate lower than the budgetary breakeven point for some of the six nations.
In its regional economic outlook report released yesterday, the IMF cited a breakeven price for Saudi Arabia, Qatar and the United Arab Emirates at US$79.70, US$62.10 and US$58.60 respectively.
The level drops to US$47.80 per barrel in the case of Kuwait, but it shoots to US$77.50 and US$93.80 in the case of Oman and Bahrain respectively.
“(This) means that GCC countries as a group still have to try and balance their budgets,” said Ahmed.
GCC countries had to cut back their spending “one way or another” over the next five years and find ways of raising non-oil revenues, he said.
The IMF regional chief said economic growth in the GCC as a whole was expected to be at just under 2% in 2016.
Next year would see a “modest improvement,” rising to between 2% and 2.5%.
Saudi Arabia would grow 1.2% this year, down from 3.5% in 2015, while Kuwait and Qatar’s economies would expand by 2.5% and 2.6% respectively.
The UAE, which has been ahead of its Gulf peers in diversifying its economy, would see growth of 2.3% this year.
Record-high oil prices in the past few years have allowed GCC economies to expand rapidly, and governments were able to invest heavily on infrastructure projects.
But the drop in oil revenues pushed these governments to shelve many of them.
GCC countries also took the previously unthinkable measure of cutting energy subsidies.
“Now we’re getting into some of the more difficult areas, such as looking at the public sector wage bill,” said Ahmed, pointing out that it amounts to a large part of expenditure in some GCC countries.
Saudi Arabia announced last month new drastic austerity measures, cutting salaries of cabinet ministers by 20%, slashing perks for the 160 members of the consultative council and limiting overtime pay and allowances for civil servants.
Its measures represent one of the ways for GCC countries “to address this issue of how to bring their budgets into balance,” said Ahmed. – AFP