GCC current account to rebound in 2010: NBK

Lower oil prices depressed the external fiscal balance of Gulf oil producers to one of its lowest levels in 2009 but it is projected to rebound in 2010 due to the oil price improvement, a Kuwait bank has said.

Despite a sharp fall in imports by the six Gulf Co-operation Council (GCC) countries last year, their current account surplus plunged to a seven-year low after oil prices dipped by more than 30 per cent, National Bank of Kuwait (NBK) said in a flash report about the GCC external fiscal position.

The decline was also caused by a massive cut in the region’s crude production of more than 1.5 million barrels per day in line with a collective Opec agreement to trim oil supplies to prevent a sharp slide in prices.

“The aggregate current account balance of the GCC economies fell sharply in 2009 to its lowest level since 2002. Higher oil prices are likely to see exports rebound in 2010, however, pushing the balance back up,” NBK said.

Its figures showed the GCC’s combined current account balance shrank to around 7.8 per cent of GDP last year from nearly 22 per cent in 2008, about 20.2 per cent in 2007 and a record high of 26.5 per cent in 2006.

In the UAE, the second largest Arab economy after Saudi Arabia, the surplus dipped to one of its lowest levels to 3.6 per cent of GDP in 2009 from 8.8 per cent in 2007 and 9.5 per cent in 2006. It was as high as 20.6 per cent in 2006.

Saudi Arabia’s balance also plunged to 6.1 per cent from 27.8 per cent in 2008 and around 24.2 per cent in 2006, according to NBK.

The report showed Kuwait’s surplus slumped to about 25.6 per cent of the 2009 GDP from as high as 40.5 per cent in 2008 while that of Qatar, the world’s top LNG exporter, fell to 8.5 per cent from 12.8 per cent.

The account surplus of Bahrain declined to 2.7 per cent from 10.3 per cent while Oman’s balance turned into a deficit of 0.8 per cent of its 2009 GDP compared with a surplus around 8.3 per cent in 2008.

NBK gave no projections for 2010, but according to the Washington-based Institute of International Finance (IIF), the GCC’s combined current account surplus would likely jump from around $47.4 billion in 2009 to about $124.2bn in 2010 and swell further to $157.2bn in 2011.

In a recent study, IIF said the increase would be a result of a rise in the Gulf group’s hydrocarbon exports from about $323 billion in 2009 to nearly $419bn in this year and around $457bn in 2011.

A breakdown showed the UAE would record a surplus of around $16.5bn this year and $23.2bn in 2011 while that of Saudi Arabia would climb to nearly $35.8bn and to $49bn in the same period.

The surplus were projected at $45bn in 2010 and $52.2bn in 2011 in Kuwait, at $19.3bn and $25bn in Qatar, at $1.7bn and $1.9bn in Bahrain and at $5.8bn in both 2010 and 2011 in Oman.

Oil prices hit a record high average of around $95 a barrel in 2008 before tumbling to nearly $60 in 2009 because of slackening world crude demand following the 2008 global fiscal distress.

Crude prices are expected to recover to around $70 this year while crude output by key GCC producers - Saudi Arabia, Kuwait and the UAE - could average above last year’s supplies due to an improvement in demand.

Besides better external balance, the increase in oil prices this year is expected to widen the GCC’s combined budget surplus after plunging last year to one of its lowest levels in a decade, according to a UAE semi-official study.

The GCC nations, which pump more than 17 per cent of the world’s oil supply, assumed a modest deficit in their 2010 budgets but it could turn into a massive surplus by the end of the year due to a projected 15 per cent oil price rise, said the study by the government-controlled Emirates Industrial Bank (EIB).

From a record $189bn in 2008, the GCC’s consolidated fiscal surplus dipped to $19.6bn in 2009.

“Although the six member countries forecast a deficit of $2.9bn in their budgets for this year, the actual balance is expected to turn into a surplus of nearly $50bn. This is because most of the budgets were based on an oil price of $50 a barrel while prices are expected to average $70,” EIB said.

“The 2010 budgets were the highest in the GCC as they were nearly 3.5 to 20 per cent higher than the previous year’s budgets. Naturally, the record expenditure will stimulate the economies of member countries. The surplus will be achieved despite an expected rise in actual spending.”

Independent estimates showed the GCC earned a record high oil export income of nearly $460bn in 2008 before it dipped to about $258bn in 2009. Earnings are forecast to surpass $300bn this year.

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