Gulf Times - 21 September, 2008
Saudi Arabia, the world's largest oil exporter, will need crude prices to remain above $ 49 a barrel to avoid a fiscal deficit, a senior International Monetary Fund official has said.
"If it goes below that level we would start seeing a fiscal account deficit," Mohsin Khan, director of Middle East and central Asia at the IMF, told Dow Jones Newswires.
Oil prices have fallen drastically in the past two month, shedding over $ 50 in value since they hit $ 147 a barrel in July, raising concerns over the continued strength of Persian Gulf Arab economies.
Saudi Arabia, the Middle East largest economy, depends on oil and gas sales for 90% of its export income.
"Saudi Arabia's break-even price is the highest among the Gulf Co-operation Council Countries because they are spending on a lot of projects right now, and oil money is used to fund these projects," he said. Further declines in oil prices could tip the region's economies over the edge as they continue to spend heavily on infrastructure projects.
According to Middle East Economic Digest, Gulf states are spending about $ 2.3tn on projects.
Other Gulf states with smaller populations and lower government spending like the UAE are able to run a fiscal surplus as long as oil prices are
above $ 23 a barrel.
"The UAE will have a fiscal balance at an oil price of $ 23, if it goes below they would run a deficit. For Qatar, the break-even price is $ 24 a barrel," Khan said. Kuwait's break-even price is $ 33 a barrel, he added.
The figures, to be published in the IMF's next regional outlook for the Middle East and Central Asia, also show that other countries in the region are already running a fiscal deficit with current oil price levels.
"Iran's break-even price is $ 90 a barrel, and that is a big issue in Iran right now," Khan said.
"If prices dip below $ 90 a barrel, and we have seen it touch $ 89 earlier this week, then they would have to tighten their public expenditure policy, and probably cut subsidies, which would be an issue for the government there - the public would not be content," he said.
Iraq has the highest break-even price in the region, according to the IMF figures. The war-torn country needs prices above $ 110 a barrel to balance its books.
"They are almost starting from scratch, so it's normal... it won't be normal if the break-even point is lower because that would mean no work is being done," he said.
Algeria, whose minister is acting as the president of the Organisation Of Petroleum Exporting Countries this year, will be able to balance its budget with oil above $ 56 a barrel, Khan said.
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