Drop In Oil Prices

Market UpdateEconomics

Drop In Oil Prices Undermines Gulf Economies

Two more Gulf States are taking emergency action to plug budget black holes after close to two years of uncertain oil prices.

The government in Qatar is ready to run a budget deficit for at least three years as lower oil and gas prices have seen the country’s finances tumble into the red.

A detailed examination of the economy reveals Qatar is dealing with the first spending deficit for 15 years and that the economy has a -7.8% hole, compared to a predicted -4.8% shortfall.

Qatar is the world largest liquid natural gas exporter and one of the leading oil producing nations but sitting astride a huge reserve of wealth has not helped the economy.

Austerity measures

The government has had to slash spending, including reviews of utility and fuel subsidies, to lessen the blow of the collapse in oil and gas prices on the economy.

Warning more austerity measures will follow, the review by the Ministry of Development Planning and Statistics said: “This estimate assumes the government pares recurrent spending and caps capital spending below previously programmed levels; that there are effective cost reductions in the hydrocarbon sector and additional non-oil and gas revenues accrue to the budget.”

The budget assumptions rest on oil maintaining a price of around $50 a barrel until the end of 2018. GDP growth has been reined in as a result of the austerity measures – from a forecast 4.3% down to 3.9% this year; 3.8% in 2017 and 3.2% the year after.

Sukuk bonds

The government is also expecting the central bank to consider a cut in interest rates, manage money supply and even consider quantitative easing along the lines of the UK, Europe and USA.

Deficits in the Gulf States have eased thanks to production falling in Canada as a result of forest fires, civil unrest in Nigeria and falling shale oil output in the USA.

The Omani government is working with five foreign banks to issue two US dollar-denominated sukuk bonds worth a total of $2.5 billion to shore up a budget deficit.

Other Gulf countries, such as Saudi Arabia, United Arab Emirates and Kuwait have all taken steps to deal with budget shortfalls arising from the fall in oil prices.