Gulf hydrocarbon producers will be encouraged to keep public expenditure high in 2012 but are expected to pursue a policy of easing post-crisis fiscal measures by cutting growth in actual spending, according to a Kuwait bank.
Despite the projected slowdown, the six Gulf Cooperation Council (GCC) countries will be tempted by their massive financial surpluses accumulated on the back of strong crude prices over the past years to spend more on investment and social sectors, National Bank of Kuwait (NBK) said in a study.
“Government spending growth in the GCC is expected to slow in 2012, but continues to support consumers, investment…growth will likely dip to its slowest pace in over a decade this year to reach around six per cent,” it said.
“Exceptional spending measures, mostly on social programs, may have been worth $40 billion in 2011, nearly three per cent of GDP.”
But NBK added that large fiscal surpluses, which are needed to sustain and improve living standards and commitment to medium-term development plans, are likely to keep “government spending growth solid.”
The report said GCC states could still enjoy large fiscal surpluses this year despite higher spending as oil prices have remained above $100 a barrel, far higher than the price assumed in their 2012 budgets.
It showed the breakeven oil price in the UAE—the price needed to achieve a budget surplus, is around $103. It estimated that price at $92 in Oman, $83 in Qatar, about $91 in Kuwait and $74 in Saudi Arabia. Bahrain, which is not heavily reliant on oil exports, has the highest breakeven price of $109 a barrel.
“A fall in oil prices to $70-80 would generate major budget sustainability issues in some GCC countries…any near-term deficits can be easily financed through government reserves or bond-issuance,” NBK said.
Some GCC countries have yet to issue actual spending estimates for 2011 but in 2011, the six members overshot budgeted spending by nearly 12 per cent.
The GCC nations, which control over 40 per cent of the world’s proven oil deposits, had projected 2010 spending at around $269 billion but actual expenditure rose to $301 billion through the year.
According to Mohammed Asumi, a well known Gulf economist, the GCC’s combined budgeted spending stood at around $302 billion in 2011.
“However the data provided for the first half of last year indicates a 15 percent rise in public spending to approximately $347 billion.”