The need to maintain high oil prices in order to balance government budgets is one of the biggest long-term challenges facing the Gulf, while Dubai’s nurturing of its non-oil service sector has put it in a strong economic position going forward, panellists agreed at the Arabian Business Forum.
“The long-term challenge is going to be fiscal challenge. The GCC seems to spending a lot so you hope the oil price will continue to rise, this is not sustainable,” said Afshin Molavi, Senior Advisor at Oxford Analytica.
“The breakeven price of oil (the price required to not run a budget deficit) has gone up dramatically from US$60 to US$120. In Bahrain some estimates say they need US$120 on oil or they will run deficits... In Saudi we are looking at US$90. Six or seven years down the road the fiscal challenge will be faced,” he added.
Despite this growing challenge, Philippe Dauba Pantanacce, Senior Economist for Turkey, Middle East and North Africa at Standard Chartered said he believed the “GCC has a tremendous future”.
“It is a simple story. Hydrocarbons will keep growing. In the current environment you will still have net growth from oil products.”
While Dauba Pantanacce warned that government spending “is something that has to be watched”, he believed Dubai’s focus on the non-oil sector has put it in a solid economic position going forward.
“The non-oil economy has a great future, contrary what people perceive in Europe… Dubai is ahead of the game as it has developed a service industry. It will continue to be a core strength.”
Shane Phillips, managing director of Shane Phillips Consultants, said a clear example of Dubai’s strength was its job creation record.
“Dubai ranks in the top ten for jobs growth per capita in the world so it is one of the best cities to be in. In the GCC Qatar is leading with 23 percent growth in online jobs, while the UAE is 16 percent,” he added.