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NBK Expects Fiscal Balance to Return to GCC in 2010

Middle East : 25 August 2010

Rising hydrocarbon exports along with increased prices are helping turn things around

Low prices of oil dampened the external fiscal balance of oil firms in the Gulf region to a new low in 2009.  The National Bank of Kuwait (NBK) expects that trend to turn around in 2010 mainly because of rising oil prices.

Even though imports fell sharply in the six GCC nations (Gulf Co-operation Council) last year, the current account surplus also fell sharply to a seven-year low due to a 30 per cent drop in oil prices, according to a flash report by the NBK covering the external financial position of the GCC.

That drop was also due to an expansive production reduction in the Gulf region’s crude.  Over 1.5 million barrels per day (bpd) were cut based on Opec’s collective agreement to lessen the supply of oil in order to block a sharp price slide.

The cumulative current account balance in the GCC economies dropped in 2009, falling to a record low not seen since 2002.  Rising oil prices should cause exports to climb back up in 2010, causing the balance to rise, according to the NBK.

The NBK’s data indicated that the collective current account balance of the GCC contracted to around 7.8 per cent of GDP in 2009, down from almost 22 per cent in 2008, 20.2 per cent through 2007 and 26.5 per cent (a record high) in 2006.

The UAE has the second largest economy in the Arab world, behind Saudi Arabia.  The UAE’s surplus fell to 3.6 per cent of GDP through 2009, one of the lower points in their history and fallen from 8.8 per cent in 2007 and 9.5 per cent through 2006.  The surplus had climbed to 20.6 per cent only four years ago.

The current account balance in Saudi Arabia also fell from 27.8 per cent in 2009 to only 6.1 per cent of GDP in 2009.  The 2006 balance was 24.2 per cent, as stated by the NBK.

NBK reported that the balance in Kuwait fell from the 40.5 per cent high point of 2008 to around 25.6 per cent of GDP in 2009.  Qatar’s balance dropped from 12.8 per cent to 8.5 per cent in 2009.  Qatar is the highest LNG exporter in the world.

Bahrain’s surplus fell from 2008’s figure of 10.3 per cent to only 2.7 per cent in 2009.  Oman saw their surplus of 8.3 per cent in 2008 turn into a deficit of 0.8 per cent of GDP in 2009.

There were no projected numbers given by the NBK for 2010.  The Institute of International Finance (IIF) based in Washington, U.S.A. expects that the collective current account surplus of the GCC would climb from $47.4 billion in 2009 up to around $124.2 billion this year and grow even more to $157.2 billion in 2011.

A new IIF study noted that the rising surplus would be due to GCC’s increased hydrocarbon exports, growing to $419 billion in 2010 from $323 billion in 2009 and expected to hit $457 billion in 2011.

Further details in that study showed the UAE’s surplus should grow from $16.5 billion in 2010 to $23.2 billion next year.  Saudi Arabia’s surplus would grow to $49 billion in 2011 up from $35.8 billion this year.

Kuwait’s surplus is expected to hit $52.2 billion in 2011 up from $45 billion this year.  Qatar’s 2011 surplus should be $25 billion in 2011 up from $19 billion in 2010.  Bahrain’s is projected at $1.9 billion for next year up from $1.7 billion this year.  The surplus in Oman is expected to remain steady for both 2010 and 2011 at $5.8 billion.

In 2008 oil prices climbed to a new high averaging at $95 per barrel.  Then in 2009 the prices feel dramatically to almost $60 per barrel due to reduction in global demand for crude after the 2008 global economic crisis.

This year the price of crude should rise to $70 per barrel and output by Saudi Arabia, the UAE and Kuwait could actually surpass the 2009 supplies because of improved demand.

This improved external balance will come along with a widened collective budget surplus for the GCC, all due to increasing oil prices and a turnaround after the ten-year lows that were hit last year, according to a semi-official study conducted in the UAE.

Countries in the GCC pump over 17 per cent of the global oil supply.  After assuming a modest deficit in the budgets of 2010, the GCC could see a large surplus by year’s end if the expected 15 per cent climb in oil prices occurs, as stated in a study by the Emirates Industrial Bank (EIB).

In 2008 the GCC’s aggregated fiscal surplus hit a new record of $189 billion before falling to $19.6 billion in 2009.

The EIB stated that despite the $2.9 billion deficit forecasted by the six member nations for 2010, actual numbers should rise to a $50 billion surplus.  Most of the budgeted figures were based on a conservative oil price of $50 per barrel, while the price is now projected to hit $70 per barrel.

GCC budgets for 2010 were at record highs, almost 3.5 to 20 per cent above the budgets of the previous year.  It is expected that record expenditures will give the member economies a boost and that the surplus will happen even with an increase in actual spending.

Estimated figures from independent sources state that the GCC recorded high oil export earnings of almost $460 billion in 2008, dropping to around $258 billion in 2009.  This year’s earnings are expected to go over $300 billion.

Paul Holdsworth, Staff Writer, Gulf Jobs Market News
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