As oil prices fell sharply in recent weeks, consumers may have breathed a sigh of relief. But for Gulf governments, the drop was a reminder of their increasing dependence on energy prices remaining at historic highs.
With increased domestic spending pushing up the revenues Gulf countries need to fund their budgets, the energy-rich states have become more vulnerable to volatility in the oil markets. It is no longer unforeseeable, some say, for the days of budget surpluses to come to an end.
“It comes down to the degree to which countries are willing to live with budget deficits, to what extent they can afford these deficits,” says Farouk Soussa, chief regional economist at Citigroup in Dubai.
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