A worsening global credit crunch will not have a major impact on Gulf oil producers as they soak in mammoth crude exports liquidity that allows their governments to more than offset funding for development projects.
Despite a slide of nearly 50 per cent in oil prices over the past few weeks, the six Gulf Co-operation Council (GCC) countries are expected to net their highest ever budget surplus in 2008 while they continue to lavish funds on development, tempted by rapidly accumulating overseas funds.
Four GCC members in Opec – the UAE, Kuwait, Saudi Arabia and Qatar – netted a staggering $423 billion (Dh1,554bn) in the first nine months of 2008, more than double what they projected in their budgets for the whole of the year.
Despite a slide of nearly 50 per cent in oil prices over the past few weeks, the six Gulf Co-operation Council (GCC) countries are expected to net their highest ever budget surplus in 2008 while they continue to lavish funds on development, tempted by rapidly accumulating overseas funds.
Four GCC members in Opec – the UAE, Kuwait, Saudi Arabia and Qatar – netted a staggering $423 billion (Dh1,554bn) in the first nine months of 2008, more than double what they projected in their budgets for the whole of the year.
Saudi Arabia earned a staggering $244bn in the first three quarters of 2008, far higher than its record oil income of $194bn in 2007.
The oil revenues of Kuwait and Qatar were estimated at $69bn and $32bn, also higher than their 2007 income of $55bn and $26bn.
EIA gave no figures for non-Opec GCC members Oman and Bahrain. However, other sources estimated them at $29bn and $8bn during this year.
Besides high oil revenues this year, a surge in crude prices over the past few years has enabled the GCC nations to sharply boost their foreign assets, which peaked at $1.8trn at the end of 2007 and are expected to top $2trn this year, according to the Emirates Industrial Bank (EIB) and other sources.
Strong liquidity
Acknowledging the windfall, GCC officials have reassured their citizens that a deteriorating global financial crisis would not affect the liquidity situation in the region on the grounds public spending is still the wheel of economic activity in member states and the level of expenditure has remained high.
"Development projects in Saudi Arabia will not be affected by the present global financial crisis. We, in Saudi Arabia, have built up massive financial reserves over the past period and now control enough surpluses to finance those projects," Saudi Finance Minister Ibrahim Al-Assaf said yesterday.
"As you know, a large part of domestic liquidity is made available through public expenditure, which is still a key element in general spending. Based on this, there will be no liquidity shortages nor will there be any cut in public spending on development projects in the coming period. We currently enjoy a strong financial position and any shortage will be offset through our high oil revenues," he said.
High surplus
Despite the large increase, the GCC's budgets are projected to record their highest ever combined surplus during 2008 given the fact that growth in their income would far outrun that in actual expenditure.
"The actual forecast surplus in the budgets of the GCC states which assumed surpluses will multiply this year because of the surge in oil prices, although Bahrain and Oman projected a deficit of around $1.1bn each, this deficit will turn into a large surplus at year-end," EIB said. "The surplus will be achieved despite a sharp rise in forecast expenditure and an expected growth in actual expenditure.
"This is because oil prices have sharply increased and GCC states have overcome all the negative repercussions of the low-price period as they began to record large surpluses in 2003."
In 2007, GCC states projected a combined budget surplus of around $33bn but the actual balance shot up to nearly $110bn, half of which was recorded in Saudi Arabia, the world's largest crude exporter.
The balance was slightly lower than the 2006 surplus of around $121bn.
The combined surplus was forecast at around $39bn in 2008 as spending was projected at nearly $200bn and revenues at $239bn.
The figures included only the federal budget of the UAE as it has not yet released details of its 2007 and 2008consolidated finance account (CFA), which covers the federal spending and the budget of each of its seven emirates.
But official figures showed the UAE basked in a record budget surplus of nearly 30 per cent of its gross domestic product in 2007 because of strong oil prices.
The 2007 balance was far higher than the 2006 budget surplus of around 12 per cent of the GDP and was in sharp contrast with previous years, when the country's fiscal balance reeled under heavy deficits.
The figures by the Arab League's Inter-Arab Investment Guarantee Corporation (IAIGC), citing official UAE estimates, showed the 2007 budget surplus of 30.5 per cent was the highest actual fiscal surplus ever recorded by the UAE.
It did not specify the size of the surplus but it could be as high as Dh219bn considering that the GDP was officially estimated at Dh729.7bn in 2007.
At that level, the surplus was as high as triple the 2006 surplus of Dh72.4bn and more than five times the 2005 surplus of around Dh39.4bn.
In another report this week, the Saudi American Bank (Samba) expected the UAE budget surplus to be around 29 per cent of the GDP this year.
It did not specify the size of the surplus but based on a projected GDP of around Dh800bn this year, the surplus could be in excess of Dh200bn.
In Saudi Arabia, the world's oil powerhouse which controls a quarter of the global crude resources, the budget has reverted to gigantic surpluses over the past few years following years of painful deficits during 1990s.
The surplus hit a record SR280 billion in 2006 before easing to SR179 billion last year because of lower oil production. But it is expected to jump SR500 billion this year due to a sharp rise in crude prices and the Kingdom's oil output.
According to the National Commercial Bank (NCB), the largest Saudi bank, the Kingdom's crude production is expected to rise by 600,000 bpd to 9.3 million bpd this year and Saudi crude prices to an average $100 from $68 a barrel in 2007.
"Higher oil revenues will sharply lift the budget surplus in 2008. We expect the surplus to surge to around SR565bn (Dh553bn) this year, by far, larger than the SR40bn that was released in the 2008 government budget," NCB said.
In Kuwait, official figures released last week showed the emirate posted a $27.18bn surplus in the first five months of its 2008/09 fiscal year on higher than expected oil export earnings.
In Oman, higher oil prices and production boosted the country's total revenues to RO3.35bn (Dh31.9bn) in the first five months of this year in the same period of last year. Oil export earnings, which account for more than 60 per cent of Oman's total income, leaped by 24 per cent to RO2.18bn from RO1.76bn.
The surge apparently tempted the government to overshoot budgeted spending by around 10 per cent while actual expenditure soared by nearly 15 per cent to RO2.53bn in the first five months of 2008 from RO2.20bn in the same period of last year.
Despite higher spending, the budget recorded a bigger surplus of around RO813.8m compared with RO777.2m.
Qatar has not released actual budget estimates this year but experts expect it to record a massive surplus although it forecast its largest ever budget of around QR95bn.
Its actual income is expected to leap by more than 50 per cent this year due to higher oil prices and production and a surge in its LNG output.
Bahrain is not a net oil exporter but its income from domestic crude sales is expected to soar by more than 30 per cent to a record $eight billion this year. At the end of 2007, the tiny island nation also controlled nearly $25bn in foreign assets, according to the Institute of International Finance (IIF).
Nadim Kawach News 24-7.ae
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