Bahrain Mirror: A recent report by "Arqaam Capital" predicted that the economies of the Gulf States will suffer a significant deficit for 2020 fiscal year, amid major pressures resulting from the sharp fall in oil prices and consequences of the Coronavirus outbreak.

It recommended that these countries work on the average price of an oil barrel which they need to achieve a long-term balance in their budgets, given the expectations that oil prices will continue to fluctuate in the future.

However, the report stressed that the Gulf States governments will not change the strategies they have previously followed during the period of oil declines 2014-2016 to fill their budget deficit when these states issued new debt bonds, withdrew from reserves and monetized some of their deposits at the banking system.

The report highlighted a range of challenges facing the Gulf States economies: the exit of some shale oil companies from the market requires oil prices to remain below $25 per barrel for a long time. In case of market balance and oil prices return to $50 per barrel, shale oil will return to competition. The agreement to reduce production addresses the supply of oil, but the problem remains in the low demand and inability to expect the specific demand in the future.

There are fears that the production cut agreement will continue without coordination with the United States, which could start a trade war with OPEC countries. The report predicted that the average price of a barrel of oil this year would reach $25, and that the total deficit of all Gulf States would reach $267 billion, equivalent to 16% of GDP of all the six countries together.

Based on these challenges that confirm that oil price instability is not an emergency case, but could extend in the long term, the report recommended that Gulf States seek to reduce the average oil prices they need to achieve balance in their budgets.

The report divided the Gulf States into two teams, the first comprising Saudi Arabia, Bahrain and Oman. These countries need to lower the price levels of a barrel needed to achieve a parity of about $35 per barrel, as the report expected that these states would achieve a budget deficit of 4 to 8% of GDP, even if the average price of oil reaches $60 per barrel.

As for the rest of the Gulf States, the UAE, Kuwait and Qatar, the report recommended that the levels of oil barrel be reduced to achieve varying proportions between them ranging from $5 to $15 per barrel. It also expected that the UAE would reach a 2% deficit of its GDP, if oil price reaches $60 per barrel on average.

Meanwhile, Kuwait will not achieve a budget surplus except with these levels, as the deficit could reach about 20% of its GDP if oil price levels reach $30 per barrel this year. As for Qatar, the report predicted that surpluses would be achieved with all oil prices, even if the average oil price drops to $30 per barrel in 2020. 

Arabic Version