While the export revenues of GCC countries are significantly affected from the recent oil price slide, Kuwait and Qatar are the most fiscally resilient countries owing to their low breakeven prices and large reserves, a report said.

The IMF estimates that losses in oil export revenues this year for GCC countries could amount up to $300 billion from the cheaper oil prices, added analysis released by Kuwait-based Asiya Investments.

These revenue losses are about 19 per cent of total GDP for the GCC countries. Given IMF estimates of fiscal breakeven oil prices for GCC countries in 2015, all GCC countries with the exception of Kuwait will sustain fiscal deficits if oil prices remain at current levels.

However, the reduction in export revenues is unlikely to cause a significant economic slowdown in 2015 in the Gulf. GCC countries can tap into their large accumulated fiscal and external reserves to smooth out budgetary shocks from the drop in revenues. Current estimates suggest that GCC reserves can finance substantial deficits for at least five years. Fiscal spending, a key driver of economic growth in the region, will probably remain unchanged.

Among the most fiscally resilient countries are Kuwait and Qatar, owing to their low fiscal breakeven even oil prices ($53.3 and $77.6 respectively), and to their relatively large reserves. However, Oman and Bahrain will struggle during the current slump in oil prices, with breakeven prices at 107.4 and 116.5 respectively, which will be difficult to sustain if current prices persist.

Cheap oil will benefit Asia

Emerging Asian economies will benefit greatly from cheaper oil. The price of oil is currently around $55 a barrel, after having dropped by more than half its value of $115 last June. If oil prices remain at a current levels this year, Thailand would be one of the countries to benefit the most in emerging Asia, with its GDP estimated to be about 3.7 per cent higher compared to a $115 oil price scenario.

Taiwan also stands to benefit, with its GDP estimated to be about 3 per cent higher. On the other hand, Malaysia, being the only net exporter of oil in the group, will likely be adversely affected from lower oil prices, with its GDP estimated to be about 2 per cent lower than it would be without the oil price drop.

These results are based on estimates by Asiya Investments on the impact of oil price changes on GDP growth for these economies.  The simulations assume that all factors other than the oil price are constant.

Cheaper oil helps Asian economies through several channels: improved external and fiscal positions, as well as lower input costs and higher household income. For Singapore, Taiwan and Thailand, whose net oil imports take out a sizable chunk from their GDP, savings from lower energy expenditures could be a significant windfall.

In dollar terms, Singapore would lower its import bill by about $25 billion if oil prices remained at current levels. In addition, Taiwan would save about $18 billion and Thailand about $10 billion in energy expenditures. With the exception of Singapore, which exports refined petroleum products, these countries’ exports are largely manufactured goods, which have not dropped in price.

In terms of their fiscal positions, cheaper oil will allow these countries to cut down on costly and inefficient fuel subsidies, which have been a drag on emerging Asian economies during periods of high oil prices. The freed-up funds from lower fuel subsidies could now be reallocated to spending on more productive infrastructure programs, without inducing a sudden spike in fuel prices.

A good example is Thailand, which spent around $16 billion dollars in fuel subsidies over the past three years, hampering spending on the country’s 7-year infrastructure programme. – TradeArabia News Service