Fitch: Era of huge Gulf surpluses at risk

ERA ENDING: Fitch said the global economic slowdown and drop in oil prices was eating into budget surpluses. (Getty Images)

The era of huge fiscal surpluses in the Gulf is at risk of coming to an end due to the global economic slowdown and sharp fall in oil prices, Fitch Ratings said on Tuesday.

The ratings agency said in a report that Gulf states’ public finances were in better shape than before the 1998 drop in oil prices, but that rising public spending had pushed up the breakeven price at which point falling oil revenues would impact on budgets.

Oil prices hit an all-time high above $147 a barrel in July, but since then prices have tumbled to around $60.

Fitch said fiscal surpluses were much higher than in 1998, but Gulf sovereign wealth funds, which governments use to invest their oil revenues, would have suffered capital losses on their equity holdings this year due to plummeting global stock markets.

However, the ratings agency said it did not expect most Gulf states to cut spending. It said only Bahrain would have to cut spending to adjust to lower oil prices.

“Fitch believes that Abu Dhabi, Saudi Arabia and Kuwait will avoid major cuts to spending plans in 2009, and will be content to run much lower surpluses,” the ratings agency said.

“The agency believes governments will wait and see what happens to oil prices next year and will then make a more gradual adjustment.”

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