Gulf budget deficit easing
Gulf Region, Analysis, 8/23/1997

Gulf Arab oil producers are gradually regaining control over their spiraling budget deficits despite being tempted to increase spending due to strong oil prices, experts said.

From a record 30 per cent of the gross domestic product (GDP) in 1991, the deficit in six Gulf Co-operation Council (GCC) countries was slashed to less than 10 per cent in 1994 and around four per cent in 1996, the experts added.

The windfall is expected to drive the deficit to one of its lowest levels this year as crude oil prices remained strong and non-oil earnings will likely be higher.

"The performance of the public and private sector so far this year indicates Gulf governments are spending, generously, " a Saudi banker said.

³Yet I think the deficit will be low by the end of the year as revenues have already shot far above projections. Our expectations are that the GCC countries deficit will be in the range of three to four per cent of the GDP.²

Oil prices have a strong impact on the economies of GCC states as crude oil sales account for 35 per cent of the GDP and 80 per cent of the exports.

Most GCC states overshot projected expenditure in 1996 because of an increase of more than $3 a barrel in oil prices.

Saudi Arabia, the world¹s biggest oil producer and exporter, was tempted to spend nearly $11,8 billion above its forecasted $40 billion although it has vowed to trim expenditures to tackle a persistent deficit.

Again, it could not resist strong prices this year, projecting spending as high as $48.2 billion but a relatively low deficit.

The United Arab Emirates, the second oil power-house in the GCC, also boosted spending to a record $19,4 billion, but the deficit fell to $4.8 billion from $5.3 billion due a rise of nearly 26 per cent in oil export earrings.

Because of such an expected increase in oil revenues, most GCC countries largely boosted expenditure over projected levels.

But at the same time they were able to cut the deficit said the Amman-based-Economic and Social Commission for West Asia (ESCWA), an affiliate of the United Nations.

Such increase in expenditure has given a strong push to their economic performance. Estimations showed that the GDD of the GCC recorded a real growth rate of 4.9 per cent in 1996 compared with only 1.1 per cent 1995.

But in its annual report on Arab economies, ESCWA said high oil earrings had slackened reforms announced by most GCC government to spur growth and cushion the effects of unpredictable crude export revenues.

The report estimated the six members netted nearly 93 per cent of the increase of $ 16.4 billion in the total Arab oil income of $ 96.5 billion last year.

Bankers put the GCC'S revenues at nearly &80 billion.

"The increase in oil revenues last year had a good impact on the internal and external balances of the region in general," it said.

GCC states produce nearly 13.5 million barrels per day of oil, of which around 11.5 million bpd are exported.

Crude prices have enraged nearly $19 a barrel so far this year far higher than GCC budget productions of between $13 and 17 a barrel.

Previous Stories:
  Conference on Gulf countries committee technology   (8/19/1997)
  Kuwaiti industry faces problems, needs exports   (8/18/1997)
  UAE oil profits pay for fighters   (8/4/1997)

Please add a link on your webiste pointing to ArabicNews.com and bookmark ArabicNews.com & subscribe to our daily email news bulletin.

Search