Dubai: Average oil prices have been well above the breakeven prices of oil for the GCC. As a result, excess spending has been comfortably met from buoyant oil receipts. In fact, GCC economies have, on aggregate, continued to register relatively large budget and current account surpluses.
But there are increasing concerns that the rapid rise in spending in recent years may not be sustainable over the long term. Fiscal breakeven oil prices (minimum oil price required to balance the budget) have risen significantly in the last decade, raising vulnerabilities in the event of a sharp and sustained downturn in the energy markets.
"The average GCC fiscal breakeven oil price was $75 per barrel in 2013. Even under assumptions of a significantly slower rate of increase in spending, the surpluses could turn to deficits in the medium term. Saudi Arabia, for example, could reach that point in 2017-18," said Giyas Gokkent, senior economist of IIF, Africa/Middle East.
While Bahrain is already running a budget deficit, Oman had a small surplus budget 1.9 per cent of GDP largely supported by increased oil production, at the current level of spending, oil production and oil prices, Oman is projected to slip into a deficit situation in 2015.
"Authorities across the GCC appear to have taken note of this concern. GCC planned expenditure growth slowed sharply to 4 per cent in 2014 versus 15 per cent average growth budgeted during 2010-2013. The slowdown in target expenditure growth was broadbased with the exception of Kuwait, which had been underspending," said George Abed, senior counsellor and director for Africa and the Middle East at the IIF.