Even Wealthy Gulf Countries Hit by Falling Oil Prices, Continuing COVID Crisis
Some of the world’s richest countries are struggling to make ends meet as energy prices continue to fall. Some analysts think oil production might still be profitable at $40 a barrel, but they say that none of the Arab states, except Qatar, likely could balance their budgets at this level.It’s believed the largest oil producer, Saudi Arabia— reliant on oil for 70% of its budget—needs an oil price of $80 a barrel to balance its books.
Safwan Masri, executive vice president of Columbia University’s Global Centers, told an online seminar from Amman that the economies of the Gulf Arab oil exporters have been greatly affected by the pandemic.
“When you look at some of the GCC (Gulf Cooperations Council) countries you find that many are insulated, but they certainly are not immune,” Masri said. “Fitch downgraded Oman’s credit rating for the second time this year, as just as one example. In Kuwait, you have a $46 billion budget shortfall, and they may have to begin borrowing internationally to pay the public sectors salaries of Kuwaiti employees. Other GCC countries are tapping into foreign currency reserves, potentially undermining (taxes) against the dollar.”
While economists point to Kuwait’s $550 billion in assets stashed in the country’s Future Generations Fund, which is designed to guarantee prosperity after the oil runs out, depleting that resource is controversial. Some Kuwaitis said now is the time to start drawing it down, while others warn that without taking concrete steps to diversify the economy and create jobs, such a safety net could run out in 15 to 20 years.Other Arab countries, like Jordan, do not have the financial cushion that oil producers can draw on at this time. Masri points out Jordan’s first quarter revenues plunged by nearly $1 billion dollars compared to the previous year.Ziad Fariz, Jordan’s Central Bank governor, told the seminar that all of Jordan’s sectors have been affected, including its lucrative tourism industry, which suffered a 75% loss.
“This coronavirus came while we were about to move in growth after a very slow period,” Fariz said. “We were hoping that growth would resume by 2020. This drama came, this shock which got everybody by surprise. The impact was huge. The assessment is always moving in a negative direction. We were expecting growth of more than 2% this year, now the expectation is that growth will be negative 4.6%.Fariz says the challenge for Jordan and other countries is how to reduce their debt levels to something sustainable.