Plunging oil prices cost Gulf States $300 billion

The International Monetary Fund (IMF) said on Wednesday that plunging oil prices will cost Gulf Cooperation Council (GCC) states up to $300 billion this year. This, claimed the IMF, will force them to dip into their large asset reserves. Oil prices have fallen by 50 per cent since last summer. The losses will have a negative effect on national budgets across the region, with Saudi Arabia, Kuwait, the UAE, Oman, Qatar and Bahrain affected in particular.

IMF estimates say that five of the six GCC states will have budget deficits this year; Saudi Arabia’s, for example, will go from 1.1 per cent of its GDP in 2014 to 10.1 per cent. However, the GCC states may be able to continue to fund their economic activities despite these losses by dipping into their large foreign assets accumulated during the period of rising oil prices when the cost of a barrel of oil was over $100.

Furthermore, said the IMF, the states’ economies are expected to grow by 3.4 per cent this year, which is a one point drop compared to the predictions last October. According to Masood Ahmed, the IMF’s director for the Middle East and Central Asia, the issue lies in knowing how long these countries plan on funding their budget deficits without decreasing their spending.

The IMF also expressed its concern regarding the economic obstacles for the security situation in the Middle East. “Conflicts, terrorism and related security disruptions continue to be a prevailing concern in the region,” it noted in its report. “Although airstrikes have slowed the advance of the so-called Islamic State (ISIS), conflicts in Iraq and Syria persist, creating significant economic and political spill overs for neighbouring countries (especially Jordan and Lebanon).”

Ahmed expressed the international body’s concern regarding Yemen, where Shia militias have taken control of the presidential palace. “We are worried about the continued difficulties in Yemen, which receives financial aid from the IMF,” he added.