GCC fiscal surplus may double

A surge of nearly 50 per cent in oil prices could double the combined fiscal surplus of Gulf hydrocarbon producers although most of them are believed to have been tempted by high income to boost expenditure.

Oil exports alone could fetch the six-nation Gulf Cooperation Council (GCC) one of their highest incomes of nearly $608 billion this year, a whopping increase of around $143 billion over 2010, when oil revenue stood at $465 billion.

GCC members which have released preliminary data for 2011 reported a large surplus through the year while other members are expected to unveil a much larger positive balance by the end of the year, according to financial analysts.

From nearly $70 a barrel in 2010, oil prices could climb to their highest average of at least $100 in 2010. The surge has been accompanied with a sharp rise in the region’s crude output, mainly Saudi Arabia, which is believed to be pumping nearly one million barrels per day above its 2010 production level.

“The surge in oil prices and output shored up the GCC states’ financial capabilities, allowing them substantial annual budget surpluses,” the government-controlled Emirates Industrial Bank (EIB) said in a study.

It said the GCC countries, which sit atop more than 40 per cent of the world’s recoverable crude deposits, recorded a combined fiscal surplus of around $136 billion in 2010 and projected the balance to rocket to $304 billion in 2011.

Projections the Saudi American Bank Group (SAMBA), based on IMF estates, showed the combined GCC fiscal surplus would surge to 11 per cent of GDP in 2011 from nearly 5.8 per cent in 2010 and a deficit of one per cent in 2009.

A breakdown showed all members, excluding Bahrain, would record surplus, which it put at as high as 27 per cent in Kuwait and 10.2 per cent in Saudi Arabia. The surplus was forecast at 6.9 per cent in the UAE, eight per cent in Qatar, and five per cent in Oman. Bahrain could have a shortfall of seven per cent.

Kuwait has already released figures for the first months of its fiscal 2011-2012 year, which started on April 1. it showed the budget surplus nearly doubled to KD8.1 billion ($29 billion) from KD4.6 billion ($16 billion) in the same period of the previous fiscal year. The surplus this year accounted for 22 per cent of GDP In Saudi Arabia, the largest Arab economy and the world’s top oil exporter, a projected budget shortfall will likely turn into a massive deficit as a result of higher oil prices and output by the Gulf Kingdom.

Forecasts by the Riyadh-based Jadwa Investment showed the surplus could be SR226 billion ($60 billion) compared with a budgeted deficit of SR40 billion.

The projected surplus this year will be more than double the SR109 billion ($29 billion) balance recorded in 2010 and in sharp contrast with the SR87 billion ($23 billion) deficit in 2009, when oil prices were relatively low.

Jadwa expected the Kingdom’s actual public expenditure to leap by nearly 40 per cent to SR809 billion this year mainly because of government commitment under a massive financial handout announced by King Abdullah early this year, involving spending of more than SR500 billion.

But it expected revenue to rocket to their highest ever level of SR1,035 billion ($276 billion) as a result of the surge in oil prices and the Kingdom’s crude output, which is projected at more than nine million bpd this year.

Qatar, the world’s largest LNG supplier, is expected to record a much higher fiscal surplus this year because of strong crude prices and gas exports.

According to SAMBA, Qatar based its budget for fiscal year 2011-2012 on an oil price of $55 a barrel, almost half the expected actual average this year.

“Despite the expected large increases in spending, Qatar can comfortably finance its budget. Hydrocarbon revenues will surge this year on the back of stronger prices and higher production and overall we expect the budget surplus will rise back to eight percent of GDP in 2011/2012, with a likely dip to six percent the following year on somewhat weaker oil prices,” SAMBA said.

Its figures showed revenues stood at around $44.4 billion in the 2010-2011 fiscal year, which ended on March 31, and expected them to soar to $62.3 billion in 2012. Oil and gas income was put at $26.8 billion in 2010-2011 and is projected to hit an all time high of around $38.3 billion in 2012.

Spending was estimated at $31.6 billion in 2010-2011 and $48.9 billion in 2012, creating a surplus of $5.3 billion and $13.4 billion respectively.

Oman has also reported a large surplus in the first months of its 2011 fiscal year despite higher spending. Official data shoed the surplus shot up by nearly 77 per cent in the first eight months of this year.

From around RO415.3 million ($1,08 billion) in the first eight months of 2010, the budget surplus soared to RO736.5 million ($1.9 billion) in the first eight months of 2011, the Omani ministry of national economy said.

The surge was mainly a result of a 62 per cent rise in oil export earnings to nearly RO5.53 billion ($14.4 billion) from RO3.4 billion ($8.85 billion) as a result of a sharp rise in crude prices and Oman’s oil production to nearly 881,000 barrels per day from 858,000 bpd in the same period.

High oil income boosted the country’s actual revenue by about 42 per cent to RO7.25 billion ($18.85 billion) from RO5.1 billion ($13.3 billion).

Actual expenditure swelled by nearly 11.7 per cent to RO5.23 billion ($13.6 billion) from around RO4.68 billion ($12.2 billion), the report showed.

The UAE has not released budget figures for 2011 but forecasts by Saudi Arabia’s largest bank, National Commercial Bank (NCB) showed the country’s fiscal balance will largely improve because of higher oil revenue.

In a report last month, it said Abu Dhabi’s budget balance would also be bolstered by revenue from its state oil company ADNOC and return from its overseas assets, controlled mainly by the Abu Dhabi Investment Authority.

Citing official data, NCB said Abu Dhabi projected a budget a deficit of Dh84.9 billion in 2010 based on an oil price of about $60 a barrel.

It said the result appears to have been at least largely avoided due to a far higher actual oil price, which averaged above $70 last year.

“Continuing the consolidation trend of 2010, Abu Dhabi intends to balance its books this year. In reality, the fiscal position of the emirate is likely to be significantly stronger since the budget excludes revenues from important state-owned entities, including the Abu Dhabi National Oil Company,” it said.

Turning to Dubai, NCB said the emirate’s 2011 budget also seeks to trim government spending with the objective of cutting the deficit from Dh six billion to Dh3.8 billion. Overall expenditure is set to fall to Dh33.7 billion, which is below the levels seen in 2009-2010, it said.

 “Unlike elsewhere in the region, the proportion of oil in Dubai revenues is a modest 8.4 per cent and an additional 6.7 per cent will be generated by investment income,” the study said.

NCB gave no data on the UAE’s foreign assets by SAMABA put them at $719 billion at the end of 2010, including nearly $627 billion controlled by ADIA. Its figures, based on international sources, showed Dubai controlled nearly $19.6 billion while the rest is held by Mubadala and IPIC of Abu Dhabi.

The report showed the UAE’s assets controlled by its sovereign wealth funds (SWFs) accounted for 65 per cent of the total GCC SWF funds of round $1,108 billion, except those by the Saudi Arabian Monetary Agency (SAMA).

Bahrain, the only GCC member which does not export oil given its tiny hydrocarbon resources, recorded a deficit of around five per cent in 2010 for the second consecutive year. The deficit was around 8.9 per cent in 2009 while its budget was in surplus of 4.9 per cent in 2008.

Citing recent IMF data, SAMBA said Bahrain’s budget would still suffer from a deficit of seven per cent of GDP this year but did not say why.

EIB projections showed high oil prices will ally with rising output to boost the GCC’s combined crude export earnings to a record $608 billion in 2011.

“This large increase in crude prices together with a rise in production to nearly 16.5 million barrels per day, will likely push up the GCC’s crude export earnings to a record $608 billion in 2011 compared with $465 billion in 2010.”

EIB said Saudi Arabia, the world’s largest crude exporter, has boosted oil supplies to one of its highest levels of around 9.8 million bpd over the past few months to make up for crude disruption in conflict-hit Libya.

It gave no figures for supplies in other GCC members but industry sources estimated the group’s total production in 2010 at 15.2 million bpd.

OPEC’s statistics showed Saudi Arabia earned nearly $196 billion in 2010 compared with around $167 billion in 2009. The UAE’s income surged to $74 billion last year from $57.5 billion while that of Kuwait and Qatar swelled to $61.6 billion and $29.2 billion from $46.6 billion and $19.1 billion respectively.

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