Spectre of budget deficits is staying
Budgetary shortfalls are a relatively new phenomenon in the Gulf countries and with no clear end in sight. Undoubtedly, the culprit is nothing but the sustained low oil prices since mid-2014.
Research by Kamco of Kuwait projects a combined budgetary gap of $153 billion in 2016 in the six-nation grouping, up from $119 billion in 2015. Worse, the report expects the shortfall to remain above $100 billion each year until 2021 on the back of unrelenting low oil prices.
Saudi Arabia is assumed to be responsible for 55 per cent of the deficit in the GCC in 2016. It suffered a deficit of $98 billion in 2015, while the projected shortage this year is $87 billion.
These statistics for Saudi Arabia compare unfavourably with surpluses recorded in past years, specifically $14 billion in 2014, $53 billion in 2013 and the exceptional $103 billion in 2012. The surplus recorded in 2012 occurred on the back of higher than projected revenues from high oil prices.
The UAE — the second largest GDP in the GCC — is not known for recording budgetary shortages thanks to strong economic fundamentals. It is widely acknowledged that the economy is the most diversified within the GCC, which translates into not being overdependent on the petroleum sector for its well-being. This is particularly true in the case of Dubai, where non-oil activities form the cornerstone of the emirate’s economy.
Kuwait is emerging as another primary source for budgetary deficits in the GCC after Saudi Arabia. Kuwait registered a deficit of $15.3 billion for the fiscal year ending March, thereby ending years of continuous budgetary surpluses partly through lower actual expenses and higher revenues.
Rating
In a rare move, Moody’s Investor Service recently assigned a negative outlook for Kuwait, reflecting concerns about the implementation of fiscal and economic reforms. Qatar prepared the budget for fiscal year 2016 with a projected deficit of $12.7 billion. Qatar has few choices with regards to cutting capital expenditures as it prepares for the World Cup 2022.
Oman recorded a deficit of $11.7 billion in 2015. The projection for 2016 calls for $8.6 billion.
Bahrain is projected to post a deficit of $4.1 billion in 2016. This is a substantial amount, comprising 42 per cent of planned expenditures for the fiscal year.
Arguments can be made about the exact figures but not necessarily the notion of budgetary deficits remaining a reality for the foreseeable future. There are some structural challenges with oil prices and unlikely to disappear in the near future.
It is contended that the fall in prices had more to do with supply rather than demand causes.
Reference is made to stronger output from the US in a span of years. According to the BP Statistical Review of World Energy, crude oil production in the US stood at about 7 million barrels per day in 2005 and 11.7 million barrels per day in 2014.
This translated into the US accounting for 13 per cent of the world’s output, similar to the Saudi level. However, Saudi Arabia remains the largest oil exporter.