Gulf Arab states, which depend on oil for most of their revenues, should brace for tighter budgets to face the double effect of weaker oil prices and lower output quotas following the anti-US attacks, economists said Tuesday, October 23.
But, thanks to strong oil prices and high production quotas for most of 2001, the oil-rich states will most likely still end the current fiscal year with either small deficits or balanced budgets, they added.
"Oil prices have weakened considerably in the wake of the September 11 attacks. OPEC is under pressure not to cut output now," said Zahid Khan, chief economist of Riyadh Bank.
Political considerations as well as economic recession, which appears to have started, forced OPEC not to trigger the price band mechanism which stipulates an automatic output cut if oil prices stay below $22 a barrel for 10 working days, Khan told AFP.
Oil prices have plummeted more than 20 percent since the terror attacks on New York and Washington. Brent crude on Monday closed just above $21 a barrel, while the OPEC basket was below $19.
OPEC heavyweight Saudi Arabia has projected a balanced budget for 2001, based on a price of $22-23 a barrel and a production quota of eight million barrels per day (bpd). For most of the period up until the US attacks, the targeted price and output quota remained above projections.
"For this very particular reason, I believe the budget will break even, or might have a small shortfall," Khan said. The prestigious Saudi Consulting Center for Finance and Investment projected in its September report a small deficit of $2.59 billion; based on a drop in output quota and a six percent rise in public spending.
From the start of September, the Saudi output quota was cut to 7.541 million bpd in line with an OPEC decision to reduce production in a bid to boost prices. Average daily output of Saudi Arabia reached 8.15 million barrels until end of August. Also, the price of Saudi oil has dropped from above $25 a barrel in the first eight months of the year to below $20 on Monday.
In a report on the impact of the US attacks on the Saudi economy, Saudi American Bank (SAMBA) made no change in its forecast for a balanced budget for 2001, but expected a $10-billion decline in oil revenues and a five-billion-dollar deficit for 2002.
In Kuwait, the independent Al-Shall Economic Consultants expected the emirate to lose about 30 percent of its oil revenues and a significant figure from the income and value of its foreign investments. It warned that the emirate should "prepare and plan to face two financially tough years."
Kuwait, which calculates oil on a conservative price of $15 a barrel, is projecting a $5.95 billion deficit for the year which ends March 31, 2002.The emirate boasted a budget surplus of 1.78 billion dinars ($5.8 billion) in the shortened nine-month fiscal year 2000/2001 which ended last March 31.
Kuwait's production quota was cut to 1.861 million bpd from above two million barrels. Production of Qatar, Oman and the United Arab Emirates, the other Gulf oil producers, was also slashed several times this year. Oil income in these countries makes up between 80 and 95 percent of their public revenues.
"If the trend continues, the revenues from oil will be much lower than the Gulf States have planned. It will be more difficult to face the double effect of a lower price and output quota," Khan warned. "As a result, the budgets will be tighter, and deficits (if any) will depend on government spending," he said. — (AFP, Riyadh)
by Omar Hasan
© Agence France Presse 2001
© 2001 Mena Report (www.menareport.com)
