The budgets of six Gulf oil producers are again expected to bask in massive surpluses this year despite the recent sharp fall in crude prices and a projected surge in actual spending, analysts said yesterday.
Although crude prices have dived by at least $30 a barrel in less than a month, they remained more than double the price assumed by the Gulf Co-operation Council (GCC) countries in their 2008 budgeted revenues.
In the first half of 2008, the oil export earnings of four Gulf Organisation of Petroleum Exporting Countries (Opec) approached their revenues for the whole of last year and exceeded their projected revenues for all of this year in some members.
"The recent decline in oil prices does not mean the GCC budgets will revert to deficits… they will still record large surpluses this year because oil prices are still very high and are expected to be far higher than the budgeted level for this year," Said Al Shaikh, Chief Economist at the Saudi National Commercial Bank, said. In their 2008 budgets, GCC nations forecast a surplus of $39 billion (Dh143.1bn) but it was based on an average oil price of 40-$50 a barrel.
The price of Opec's basket of 13 crudes has averaged around $109 a barrel so far this year, more than double the level assumed by most GCC producers.
According to the state-run Emirates Industrial Bank (EIB), the GCC's combined budget surplus would be much higher than had been forecast because of the surge in oil prices above the projected level. It said the surplus would increase despite a large rise in both assumed and actual spending.
"The actual forecast surplus in the budgets of the GCC countries, which assumed surpluses will multiply this year because of the surge in oil prices… although Bahrain and Oman projected a deficit of around $1.1bn each, this deficit will turn into a large surplus at the end of the year," it said.
"The surplus will be achieved despite a sharp rise in forecast expenditure and an expected growth in actual expenditure… this is because oil prices have sharply increased and GCC states have overcome all the negative repercussions of the low-price period as they began to record large surpluses in 2003," the bank said.
In 2007, GCC states of the UAE, Saudi Arabia, Bahrain, Qatar, Oman and Kuwait projected a combined budget surplus of around $33bn but the actual balance shot up to 110bn, half of which was seen in Saudi Arabia.
The balance was slightly lower than the 2006 surplus of around $121bn. The figures included only the federal budget of the UAE, which forecast equal revenues and expenditure in 2006, 2007 and this year.
They did not include the country's consolidated finance account (CFA), which better reflects the UAE's financial position as it involves the federal budget and the local spending of each emirate. The UAE has so far published CFA figures for 2006, when it recorded its highest surplus of around $19.7bn because of a rise in revenues.
In a report published this week, the Kuwaiti-based Inter-Arab Investment Guarantee Corporation said the UAE fiscal surplus was as high as 30 per cent of its GDP, which means it could have exceeded Dh200bn. With average oil prices projected far higher this year, the CFA surplus could swell further in 2008.
Over the past five years, the cumulative budget surplus in the GCC countries has exceeded $300bn, allowing them to slash public debt, sharply boost their overseas reserves, and embark on a massive development drive with the participation of the fast growing private sector.
The present boom is in sharp contrast with the situation during the 1990s, when most of them suffered from record fiscal deficits, slow growth and high debt.
The combined GCC budget shortfall peaked at nearly $35bn in 1991 after some of them were forced to sharply boost spending to finance a US-led multinational campaign to eject Iraq forces from Kuwait.
"Gulf states are passing through a new fiscal era because of the massive fiscal surpluses, which have helped them overcome all the negative consequences of low oil prices during the 1990s," EIB said. "Some of them have managed to slash their public debt from 115 to only 19 per cent [Saudi Arabia], while high public spending has largely stimulated their economies… while the first oil boom era enabled them to complete most of their infrastructure projects, the current boom will allow them to carry out strategic development projects that will contribute to diversification of sources of income… this in turn ushers in a new stage in the GCC economies."
Figures by the Energy Information Agency of the US Department of Energy showed the oil export earnings of the GCCs four Opec members climbed to an all time high during the first half of this year. It put them at $194bn in Saudi Arabia, $63bn in the UAE, $55bn in Kuwait and $26bn in Qatar.
According to the Gulf Finance House, the combined revenues of the six member states could top $600bn this year, nearly 63 per cent higher than their 2007 earnings.
With actual expenditure expected to grow by between 10 per cent to 20 per cent this year, the GCC budget surpluses are expected to soar above $100bn.