Gulf producers face fiscal deficits on oil price crash, COVID-19 spending: IMF

Dubai — The six members of the Gulf Cooperation Council -- many of which were already struggling to balance their budgets -- are expected to see ballooning fiscal deficits as the oil price crash diminishes oil incomes while spending rises to combat the coronavirus outbreak, an International Monetary Fund official told S&P Global Platts on Friday.

"For the GCC, because of the drop in revenue and also increases in spending, of course we have to expect deficits will go up," said Jihad Azour, the IMF's director for the Middle East and Central Asia department.

Most GCC countries have unveiled generous stimulus packages and implemented a slew of measures to mitigate the economic repercussions of the pandemic and the oil price crash. The Gulf countries include the UAE, Saudi Arabia, Qatar, Oman, Bahrain and Kuwait.

Despite these measures, the GCC will suffer from a big drop in economic growth and potentially recession.

"Clearly we will see a big drop in growth and they could be also in a situation where growth could be negative for the Gulf and oil exporters," Azour said.

"Because of no limitations in terms of oil exports, some of them, with the increase of capacity and exports, will compensate partially but this will not be enough to cover for the loss of output in economy that will come with the shock."

Prior to the coronavirus outbreak, the Gulf region's oil producers needed relatively high oil prices to balance budgets as they were increasing spending to boost economic growth.

"Pre-COVID-19 breakeven prices on the fiscal side are not going to be met after the shock," said Azour. "They are going to be higher because of the drop in revenues."

Bahrain was forecast to have the highest breakeven oil price of $91.8/b in 2020 out of the six GCC Countries, according to the latest IMF Regional Economic Outlook for the Middle East and Central Asia published in October last year. Qatar had the lowest at $45.7/b.

Financial help

Some oil exporters are contemplating seeking IMF help to cope with the coronavirus outbreak, which is taking a toll on their economies.

To assist countries to weather the economic fallout, the IMF has announced a $50 billion facility aimed at helping such countries.

Iraq and Algeria are among seven Middle East countries exploring the option of applying for financial help from the fund, Azour said.

"The shock also on the oil side has had a big impact on Iraq," he said. "They have enough [financial] reserves, but they need to take measures because the reserves could be depleted quickly."

Countries applying to the $50 billion facility can draw up to 50% of their quota in the fund, but that quota may be raised higher, he added. Each country has an IMF quota that determines its access to fund financing.

Countries can also blend between facilities and the fund is contemplating introducing new facilities to help countries currently suffering economically.

"The fund has almost $1 trillion of financial capacity [and] that could go up further based on the arrangements we have with some countries," said Azour.