Low oil prices will hurt GCC economies
CNN reported back in October that as per a report of the International Monetary Fund, the oil price if hovering around the $50 a barrel, most of the GCC countries including Saudi Arabia will run out of cash in five years or less. That price these past weeks, has gone much lower than $37 with little hope of ever returning to their pre-June 2014 level.
In the meantime, the IMF predicts that the fluctuating low oil prices will this year alone wipe out an estimated $360 billion from the Gulf and the once huge budget surpluses could be going into massive deficits.
“Oil exporters will need to adjust their spending and revenue policies to ensure fiscal sustainability,” the IMF wrote.
More recently, a survey conducted by CFA Institute, the global association of investment professionals, has shown that 81% of respondents expect low oil prices to impact the GCC economies.
The CFA Institute GCC Societies Survey highlighting economic, investment and employment trends and challenges in the GCC region, its local executive said :
“The economic outlook for 2016 seems uncertain, with the vast majority of respondents expecting low oil prices to impact the GCC economy. Despite this uncertainty, the possibility of the introduction of VAT and human resources are dominant themes.”
An article of The Conversation of 21 December 2015 is proposed here below
How plummeting prices are spurring reform in oil producing countries
It has been a turbulent year for oil. Prices were strong in summer 2014, before plummeting in the second half of that year. After a modest stabilisation in early 2015, they dropped even further and are now more than two thirds lower than in summer 2014 – as the graph below shows. It’s bad news for oil producers but is forcing some, at least, to reform their economies as a result.
Russia is losing an estimated US$2 billion in revenues for every dollar fall in the oil price. Its economy is heavily dependent on energy revenues, which account for 50% of its federal budget revenues. Even a dramatic interest rate hike to 17% has not helped the steep devaluation of the ruble, the stock-market drop or the amount of money leaving the country.
The situation is even worse for the world’s largest exporter of oil, Saudi Arabia, which is expected to end the year with a deficit of $150 billion – about 20% of its GDP and the largest in its history. It has already started cutting project budgets and military acquisitions as a result. It is even introducing VAT for the first time.