Gulf's fiscal diet risks deeper pain amid oil price uncertainty | Reuters

Gulf's fiscal diet risks deeper pain amid oil price uncertainty | Reuters:

Oil-rich Gulf nations are relying on a well-worn playbook of spending less and borrowing more to get through the coronavirus crisis but with the outlook for oil clouded by uncertainty the strategy is riskier than before.

Previous bouts of belt-tightening have relied on rebounding oil prices to replenish state coffers but Gulf states have bigger funding needs and lower foreign assets than in previous crises, while the pandemic risks keeping energy demand subdued for longer.

Brent prices LCOc1 have rebounded since plunging to a more than 20-year low in April, but at just over $40 per barrel, they are significantly below what most Gulf states would need to balance their budgets.

In the meantime, the shift to austerity in a region where government spending is the main engine of economic growth, along with a move in some countries to protect citizens’ jobs at the expense of foreign workers, is already hurting growth prospects.

“The problem faced by the GCC (Gulf Cooperation Council) is that domestic demand is driven by government spending and this would need significantly higher oil prices,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.