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Gulf fiscal surplus to fall 4.7%

Sharp fall in oil prices will slightly affect the GCC nations' fiscal growth. (AFP)

By Nadim Kawach

The UAE's fiscal surplus is projected to contract sharply this year because of lower crude prices and an expected drop in output but it will likely be the highest in the Gulf, according to a key regional financial centre.

The sharp fall in oil prices will also ally with lower output by the six Gulf Co-operation Council (GCC) this year to largely depress their overall financial surpluses and economies but ensuing global commodity price falls would reverse an upward trend in their inflation rates, Kuwait's Markaz said.

In 2008, the UAE recorded the highest budget GCC surplus of around 28 per cent of the gross domestic product and it is expected to remain the highest in 2009 although it would sharply shrink to 12 per cent, Markaz said in a study.

All other GCC members will suffer from a decline in their surpluses and two of them – Bahrain and Oman – could record deficits.

"The GCC on a whole posted a fiscal surplus of 22 per cent in 2008, thanks to high oil prices on an average. Going forward, with the lacklustre commodity markets and general global economy on a whole coupled with several production cuts, the revenues are expected to be significantly lower than 2008," it said.

"The fiscal surplus at GCC level is expected to drop to 4.7 per cent in 2009.

Within the GCC countries, none of the economies are expected to post a growth in the fiscal surplus as a percentage of GDP compared to 2008. The highest fall will be in Saudi Arabia, where the surplus will likely dip to only three per cent of the GDP from a record 22 per cent in 2008."

Record surplus

Strong crude prices through most of 2008 widened the combined GCC fiscal surplus to a record high of more than $200 billion (Dh734bn) after their crude and gas export income climbed to its highest level of nearly $600bn in current prices.

As most member states forecast an average oil price of around $40-$50 through 2008, their actual revenues could have nearly doubled the projected earnings after crude prices averaged above $100 a barrel this year.

Budget figures released by Saudi Arabia last month indicate the region basked in its highest ever fiscal surplus.

The Gulf Kingdom, which controls a quarter of the world's oil, put the actual budget surplus at a staggering SR590bn (Dh590bn) in 2008, more than 14 times the forecast surplus.

Kuwait said its budget recorded a massive surplus of around KD9.8bn in the first eight months of the current fiscal year which began on April 1.

UAE budget

The UAE has not released 2008 budget estimates but figures for its 2007 consolidated financial account, which covers the federal budget and spending by each emirate, showed it posted a mammoth surplus of around Dh69bn, slightly less than the 2006 surplus of Dh75bn.

The surplus does not include income from the country's massive overseas assets.

As oil prices were higher last year by nearly 42 per cent, the UAE's budget surplus was expected to sharply rise despite a projected increase in actual expenditure by around 10-15 per cent.

Other GCC budgets

Qatar, which recorded massive budget surpluses in previous years, is expected to register a record surplus in the current fiscal year which ends on March 31 because of higher oil prices and a surge in its LNG exports.

According to the government-controlled Qatar National Bank, the country's budget for fiscal year 2007-2008, which started on April 1, recorded a large actual surplus of QR 38,055 million.

Oman, which is not an Opec member, said last month its budget surplus climbed to its highest ever level of around RO1.056 bn in the first eight months of this year despite a sharp rise in actual expenditure.

In 2007, GCC states projected a combined budget surplus of around $33bn but the actual balance shot up to nearly $110bn, half of which was recorded in Saudi Arabia, the world's largest crude exporter. The balance was slightly lower than the 2006 surplus of around $121bn.

Markaz's projections showed the fiscal surplus in Qatar and Kuwait would be four per cent of the GDP this year. Oman and Bahrain will record a shortfall of six and seven per cent respectively.

Current account

As for the external balance, or current account, Markaz expected it to dive to only around 4.6 per cent this year from a record 29 per cent in 2008, when the combined GCC current account surplus peaked at $342bn.

"The reduction in revenues is also expected to impact the current account balance negatively. In 2008, the GCC economies are expected to post record current account surpluses due to high average oil prices," it said.

"The GCC current account surplus as a percentage of GDP was at a high of 29 per cent in 2008.

"However, in 2009, the surplus is expected to decline significantly to 4.6 per cent of GDP. At a country level, Saudi Arabia is expected to post the highest decline in current account surplus as a percentage of GDP from 31 per cent in 2008 to zero per cent in 2009."

The report said lower oil prices and output would also hit GCC economic performance in 2009, with GDP growth dipping to one of its lowest levels of 3.6 per cent.

"The GCC real GDP forecasts for 2009 were revised downwards significantly mainly because of a substantial cut in oil output."

It said Saudi Arabia would again be the main victim as its economy would dive to around 2.3 per cent I real terms from 4.1 per cent in 2008. Qatar will be the one odd out as its GDP would still race by nearly 10.2 per cent in 2009 because of a surge in its liquefied natural gas exports.


But the report noted that the economic slowdown in the GCC would have advantages as it would depress inflation rates following a rapid increase over the past three years because of the economic boom and rising global prices.