‘GCC risks deficit as oil price falls’

4173Gulf states will face budget shortfalls if the recent decline in oil prices persists, International Monetary Fund (IMF) chief Christine Lagarde warned on Saturday.

A sustained decline of $25 a barrel in the oil price would reduce the revenues of most Gulf countries by eight percent of gross domestic product, “and put many of them into a fiscal deficit situation,” Lagarde told reporters.

But the six nations of the Gulf Cooperation Council (GCC) have built up fiscal buffers to cope with the immediate impact of the reduction in revenues, she said after a meeting with regional finance ministers and central bank chiefs.

The combined GDP of the GCC last year reached $1.64 trillion, so in this scenario the annual revenue of the six nations could plunge by roughly $130 billion.

The total revenue of the GCC states — 90 percent of which come from oil — more than doubled from $317 billion in 2008 to $756 billion in 2012. It declined slightly to $729 billion last year, according to IMF estimates.

Lagarde called on GCC states to implement reforms and stressed the urgent need for fiscal consolidation — an appeal echoed by Kuwait’s finance minister.

Anas Al-Saleh urged steps to tackle rising public spending, mainly on wages and subsidies, as well as efforts to boost the role of the private sector.

“Comprehensive economic reforms, including reforming distortions in the public finances, should be enforced,” he said.

Saleh said the Gulf states must diversify their economies and “reduce dependence on oil.”

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