Managing budget surpluses GCC Focus
Not all GCC countries willingly publish assumed oil price in their budgets
* By Jasim Ali, Special to Gulf News
* Published: 00:00 April 25, 2010
* Gulf News
Collectively, Gulf Cooperation Council (GCC) countries are expected to post surpluses rather than deficits in the 2010 fiscal year on the back of firm oil prices. This reflects the fact that GCC states prepared 2010 budgets using relatively low average oil prices, ranging from $40 per barrel in the case of Bahrain, $50 per barrel in Oman and $55 per barrel in Qatar. Conversely, oil prices have hovered around $70 per barrel in the first quarter and projected to remain steady for the rest of 2010.
Unfortunately, not all GCC countries willingly publish assumed oil price in their budgets despite significance of such information. On average, oil income accounts for three quarters of total budgetary revenues in GCC countries. Yet oil income comprises nearly 90 per cent of treasury earnings, make it the most dependent amongst GCC countries on the petroleum sector.
Report
A recently released report by Emirates Industrial Bank predicts the six-nation GCC reverting projected deficit of $2.9 billion (Dh10.66 billion) into $50 billion surplus. Together, GCC budgets posted surpluses of $19.6 billion in 2009 and a hefty $189 billion in 2008. The extraordinary surplus registered in 2008 partly reflects rising oil prices reaching a record $147 per barrel in July that year. Still, prices dropped sharply for several months following outbreak of the global financial crisis.
The same report puts the GCC's combined budgetary expenditure at around $270 billion in fiscal year 2010, up from $236 billion in 2009. This represents a notable growth of 14.4 per cent and deserves commandment.
For instance, projected expenditures in Saudi Arabia amount to $144 billion, up by 14 per cent versus the originally planned figure for financial year 2009. For its part, Qatar projects its expenditures at $32.4 billion in the 2010-2011 fiscal year that commenced this month, up by nearly a quarter. Yet, Oman puts government expenses in 2010 at $18.7 billion, showing a rise of 12 per cent.
In fact, steady government spending is vital for private sector firms, as they partly depend on public sector projects for their survival and growth. More specifically, some private sector investors look up to public spending as a sign of positive economic prospects, hence encouraging them to take similar steps.
Yet, stronger spending allocation carries with it the threat of return of inflationary pressures. According to the IMF, all GCC countries notably Qatar suffered from relatively high inflation rates in 2007 and 2008 partly due to solid public spending. The IMF put Qatar's inflation rate at 15 per cent in 2007 and 2008.
Undoubtedly, return of inflationary pressures cannot be ruled out, but a comparison with 2007 and 2008 is possibly not warranted. In those two years, the global economy was suffering from the phenomenon of inflationary pressures partly due to declining value of the US dollar.
External impact
GCC economies suffered from imported inflation during the period of declining value of the dollar coupled with rising values of other hard currencies such as the euro and yen. This is the price GCC countries have to pay for linking their currencies to the dollar. Kuwait is an exception as it links its dinar to a basket of currencies that includes the dollar but is not restricted to it.
However, the challenge nowadays is rejuvenating local economies in order register highest possible economic growth rates. In reality, the Group of 20 (G20) countries, along with international establishments, recommend enhancing public spending as means of addressing challenges associated with lingering side-effects of the global financial crisis.
This critical juncture requires steady public spending, so as to deal with fundamental problems, namely addressing matters such as economic growth and creation of job opportunities.
Not all GCC countries willingly publish assumed oil price in their budgets
* By Jasim Ali, Special to Gulf News
* Published: 00:00 April 25, 2010
* Gulf News
Collectively, Gulf Cooperation Council (GCC) countries are expected to post surpluses rather than deficits in the 2010 fiscal year on the back of firm oil prices. This reflects the fact that GCC states prepared 2010 budgets using relatively low average oil prices, ranging from $40 per barrel in the case of Bahrain, $50 per barrel in Oman and $55 per barrel in Qatar. Conversely, oil prices have hovered around $70 per barrel in the first quarter and projected to remain steady for the rest of 2010.
Unfortunately, not all GCC countries willingly publish assumed oil price in their budgets despite significance of such information. On average, oil income accounts for three quarters of total budgetary revenues in GCC countries. Yet oil income comprises nearly 90 per cent of treasury earnings, make it the most dependent amongst GCC countries on the petroleum sector.
Report
A recently released report by Emirates Industrial Bank predicts the six-nation GCC reverting projected deficit of $2.9 billion (Dh10.66 billion) into $50 billion surplus. Together, GCC budgets posted surpluses of $19.6 billion in 2009 and a hefty $189 billion in 2008. The extraordinary surplus registered in 2008 partly reflects rising oil prices reaching a record $147 per barrel in July that year. Still, prices dropped sharply for several months following outbreak of the global financial crisis.
The same report puts the GCC's combined budgetary expenditure at around $270 billion in fiscal year 2010, up from $236 billion in 2009. This represents a notable growth of 14.4 per cent and deserves commandment.
For instance, projected expenditures in Saudi Arabia amount to $144 billion, up by 14 per cent versus the originally planned figure for financial year 2009. For its part, Qatar projects its expenditures at $32.4 billion in the 2010-2011 fiscal year that commenced this month, up by nearly a quarter. Yet, Oman puts government expenses in 2010 at $18.7 billion, showing a rise of 12 per cent.
In fact, steady government spending is vital for private sector firms, as they partly depend on public sector projects for their survival and growth. More specifically, some private sector investors look up to public spending as a sign of positive economic prospects, hence encouraging them to take similar steps.
Yet, stronger spending allocation carries with it the threat of return of inflationary pressures. According to the IMF, all GCC countries notably Qatar suffered from relatively high inflation rates in 2007 and 2008 partly due to solid public spending. The IMF put Qatar's inflation rate at 15 per cent in 2007 and 2008.
Undoubtedly, return of inflationary pressures cannot be ruled out, but a comparison with 2007 and 2008 is possibly not warranted. In those two years, the global economy was suffering from the phenomenon of inflationary pressures partly due to declining value of the US dollar.
External impact
GCC economies suffered from imported inflation during the period of declining value of the dollar coupled with rising values of other hard currencies such as the euro and yen. This is the price GCC countries have to pay for linking their currencies to the dollar. Kuwait is an exception as it links its dinar to a basket of currencies that includes the dollar but is not restricted to it.
However, the challenge nowadays is rejuvenating local economies in order register highest possible economic growth rates. In reality, the Group of 20 (G20) countries, along with international establishments, recommend enhancing public spending as means of addressing challenges associated with lingering side-effects of the global financial crisis.
This critical juncture requires steady public spending, so as to deal with fundamental problems, namely addressing matters such as economic growth and creation of job opportunities.