Oil vs coronavirus: How will Gulf economies fare?
A double shock of Covid-19 and falling oil prices brings the spectre of recession to the Gulf, while efforts to diversify economies are being derailed.
Gulf countries are in a tight spot. At a time when increased government spending is needed to offset the negative impact of coronavirus, Saudi Arabia has forced oil prices down to $30 a barrel.
For those with strong enough economies, part of the answer to the question 'where will governments find the money to survive?' might be on international markets.
Gulf authorities have announced a swathe of spending cuts in an effort to rebalance budgets this year, but with coronavirus hitting supply chains and inward investment, a fiscal response is now required. That means raiding reserves and increasing deficits to start with.
Saudi Arabia’s move to increase oil production may bring it more revenue – though that is by no means certain – despite or because of the lower price per barrel and allowing it to finance its own response to the virus, but it has made things more difficult for weaker oil exporters.
They will increase their deficit and borrow money and use their cash reserves. Issuing sovereign bonds is very important. They will have a yield curve and markets will mature. It will be a good thing - Ryan Lemand, ADSI
Indeed, Saudi Arabia also has the cushions of large FX reserves and low debt-to-GDP ratios that should allow it to spend its way out of trouble.
For others, however, such as Oman, which is already struggling, the impacts of low oil prices and the coronavirus could be much more difficult to deal with.