Following to the oil price crash and the coronavirus crisis, the Arab Gulf countries are set to accumulate as much as US$490 billion in combined government deficits between 2020 and 2023, S&P Global Ratings said on Monday.
The six countries of the Gulf Cooperation Council (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE)—include OPEC’s largest producers Saudi Arabia, the UAE, and Kuwait. Those countries have been hit by the double whammy of low oil prices and the COVID-19 pandemic this year, which has strained their fiscal positions and reduced government buffers in their sovereign wealth funds.
The price crash and the reduced demand for oil in the pandemic have already forced the world’s top oil exporter, Saudi Arabia, to triple its value-added tax (VAT) and suspend cost-of-living allowances as part of a new round of painful austerity measures to save the Kingdom’s finances.
Last week, the International Monetary Fund (IMF) said that the price plunge and the production cuts would hit oil exporters in the Middle East and North Africa (MENA) hard, with the combined oil income for those countries expected to plummet by US$270 billion this year compared to 2019.
The sharp decline in oil prices earlier this year adds further headwinds to the economies of the Middle Eastern oil producers, on top of shrinking economies due to the lockdowns to contain the pandemic, the IMF said in its latest update on the region.
The economies in the Gulf alone are set to experience a combined contraction of 7.6 percent this year because of the oil price crash, a senior IMF official forecast at the end of June.
This is a sharp downward revision from an earlier forecast by the international lender, which saw the Gulf economies experiencing negative growth of 2.7 percent.
“The oil sector will shrink sharply by around 7.0 percent and it will be accompanied by a drop in the non-oil sector also,” Jihad Azour, director of the Middle East and Central Asia department of the International Monetary Fund, said at a recent webinar.