Dropping oil prices will not affect Qatarby Kim Kemp on Nov 12, 2014
As oil prices continue to decline, as they have from June this year, the IMF warns GCC states against budget shortfalls.
According to a report by Standard & Poor Rating Services (S&P), both Qatar and the UAE are least vulnerable to a decline in the energy market, while Bahrain and Oman are the most vulnerable.
While a prolonged decline in oil prices will slow the econimies of the oil-dependent states, the most impact will be felt in the infrastructure projects, the Qatar Tribune reported.
"The recent drop in hydrocarbon prices, if sustained, could have a significant impact on the region's economic and financial indicators... and dampen economic growth," S&P reported.
On average, energy revenues for the six GCC states constitute 46% of their gross domestic product (GDP) and three quarters of their exports, the report said.
The International Monetary fund (IMF) stated that total GDP of the GCC states hit $1.64tr last year. It also noted that the countries' dependency on the hydrocarbon sector made them vulnerable, despite oil and gas reserves being key supports for their soveriegn credit ratings. It also said that any decline in energy prices will hit the infrastructure projects and private sectors most.
It revised the Brent oil price at $85 a barrel for the remainder of the year and $90 a barrel for 2015 and beyond, which is much in line with the GCC's budget price for oil, the daily reported. IMF chief, Christine Lagarde warned that the GCC states will face budget shortfalls if the decline in oil prices continues.
If government revenues drop, efforts to address energy subsidy reforms will emerge, but this will affect industries reliant on feedstock subsidies, such as petrochemicals.
A World Bank offical called for immediate cuts, as the GCC states pump one fifthe of the world's crude oil and spends $160bn on energy subsidies annually.
According to IMF estimates, total GDP from the GCC states, of which 90% comes from oil, more than doubled from $317bn in 2008 to $756bn in 2012. However, it said that the region will not be too harshly affected in the short-term, as they are able to tap into fiscal reserves estimated at $2.45tr.
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