The Gulf Cooperation Council (GCC) countries such as Oman and Qatar are facing considerable pressure from the slump in oil prices, as they are heavily dependent on oil and gas revenues, a new report said.
Oil prices have been declining since the fourth quarter of 2014, falling around 48% year-on-year and raising concerns over how long GCC countries will be able to maintain their fiscal surplus positions.
According to the Asiya Investments report, most GCC countries are still delivering high rates of economic growth, and managed to avoid a downturn so far due to the resilience of their governments’ spending, which is supported by large fiscal reserves. Yet, their reliance on oil exports remains a downside risk on the long run, according to the IMF.
The IMF has stressed the importance of increasing economic diversification and strengthening the non-oil sectors in the GCC to sustain growth and maintain fiscal surplus in the distant future.
Gulf countries share similar economic features, and lower oil prices have a major impact on the two GDP components that contribute the most to their economies, government spending and net exports.
There are four out of the six GCC countries considered to be in the contraction stage as of the fourth quarter of 2014.
Oman and Qatar are in early contraction, defined as the beginning of an economic slowdown but still above their long-term growth rate.
Kuwait and Saudi Arabia have been decelerating as well but are considered to be in a later stage of contraction.
According to the report, Bahrain and the United Arab Emirates (UAE) ended the year in an expansionary cycle. The slump in oil prices did not affect their export growth as much as in other GCC countries, due to the diversification of exported goods.
Overall, oil continues to be the one factor driving economic performance in the GCC. Economic diversification is a key element for the Gulf countries to ensure future healthy growth.
GCC member states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE.
Source: Gulf News