Gulf economies are likely to buck the global trend and continue to expand as a recovery of the oil price bolsters revenue, says EFG-Hermes, the Egypt-based investment bank. "Strengthening in the oil price will be extremely positive for the hydrocarbon-dependent GCC countries, which will see high oil revenues," the bank said in a research report released Sunday. "We have revised upward our GCC macro forecasts in line with the changes in our oil price forecasts."
The bank raised its forecast for benchmark Brent crude oil to $60 a barrel for 2009 and $70 a barrel for next year. It said saudi Arabia will post a small fiscal surplus in 2009 a revision of an earlier forecast of a deficit for the biggest economy in the Gulf. All four of the largest GCC economies were now expected to post fiscal surpluses in 2009, the bank said. It had previously forecast surpluses for the UAE, Kuwait and Qatar at prices averaging $50 a barrel this year. Gulf states supply about 20 per cent of the world's oil.
Saudi Arabia's fiscal surplus will amount to about 0.6 per cent of its gross domestic product compared with an earlier deficit forecast of 4.8 per cent, EFG-Hermes said. This was despite the bank increasing its spending growth forecast for the kingdom from 11.5 per cent to 15 per cent. Nominal GDP and the fiscal and current accounts of GCC countries would improve. The continuation of an expansionary fiscal stance for Saudi Arabia, the UAE, Kuwait and Qatar in 2010 and beyond is now assured, even if there is a potential correction in the oil price, because of a limited need for those countries to tap into reserves for non-budgeted expenditure this year.
"The ability and confidence of these countries to continue to counter-cyclically spend will remain extremely high," EFG-Hermes said. Despite break-even oil prices of above $70, EFG-Hermes expects Oman and Bahrain to post deficits. But the pair are expected to easily fund their deficits through a combination of debt financing and by tapping into reserves. email@example.com