Gulf states set to borrow up to $390 billion by 2020, says study

JEDDAH — The six Gulf Cooperation Council states, which heavily rely on oil earnings, are expected to post a shortfall of $318 billion in 2015 and 2016, Kuwait Financial Centre (Markaz) said in a report Sunday. The Gulf states are expected to borrow between $285 billion and $390 billion through 2020 to finance budget deficits resulting from low oil price, the report said. The GCC, Their public finances have been hit hard since oil prices shed more than two thirds of their value since mid-2014. Oil income made up over 80% of public revenues in GCC states before the price decline. Markaz said that GCC states will finance their deficits partly through borrowing and the rest by tapping their huge fiscal reserves. Saudi Arabia last year borrowed $26 billion from local banks and used over $100 billion of its reserves that stood at $732 billion at the end of 2014, the report said. With the exception of Oman and Bahrain, GCC states have huge fiscal reserves and a low level of public debt allowing them to raise large volumes of domestic and international debt, the report said. The GCC states posted a combined deficit of $160 billion last year compared to a surplus of $220 billion in 2012. In an earlier report in February, Markaz expected GCC public debt to rise to 59% of gross domestic product (GDP) in five years, from 30% at the end of 2015. Oil prices jumped Friday to cap a week of gains, helped by more indicators of slowing US output and hopes for an output freeze at the coming producers’ gathering in Doha. New York benchmark WTI for delivery in May gained 6.6 percent to $39.72 a barrel. In London Brent North Sea crude for June surged 6.4 percent to $41.94 a barrel. Both contracts were up eight percent or more for the week, with falling US stockpiles and weaker output helping sentiment. On Friday the picture of a prolonged slowdown in North American oil production was boosted by another fall in the number of active drilling rigs in the United States and Canada. Total US rigs fell by eight last week to a multi-decade low of 354, according to the Baker Hughes weekly tally, compared to 760 a year ago. Earlier in the week the US government reported another decline in domestic crude output to barely above nine million barrels a day after peaking at about 9.7 million barrels a day a year ago. In addition, US commercial crude inventories unexpectedly slumped in the week ending April 1. Together they supported buying in a market starved for signs of firming. Traders were meanwhile setting their sights on the April 17 meeting, led by Russia and Saudi Arabia, to discuss measures to stabilize prices, including a production freeze at January levels. The week continued to bring conflicting signals on how the meeting might go. Prices fell last week after Saudi Deputy Crown Prince Mohammed bin Salman said his country would limit output only if fellow producer Iran did the same. — SG/Agencies