The surge in the Gulf countries’ income from the sale of oil after its price increase this year represents the “last chance” for these countries to benefit from these funds, before the world reduces its dependence on fossil fuels, according to a report by The Economist magazine .
The magazine published a report explaining the potential spending aspects of the surplus obtained by these countries, taking advantage of the large income with the rise in crude prices, due to the recovery of the world economy from the Covid pandemic, and Russia’s invasion of Ukraine, and the potential risks they face in implementing large projects such as the Neom city project in northwestern Saudi Arabia.
And in the period from last January to June, the price of a barrel of Brent crude rose from $80 to more than $120 (currently around $95).
The International Monetary Fund expects energy exporters in the Middle East and Central Asia to receive $320 billion more in oil revenue than previously expected, a figure equivalent to about 7 percent of their GDP, over the next five years .
The report says that the rise in oil prices increases the financial strength of the Gulf states at home and abroad, leading to increased public spending and sending money to all parts of the world.
This year’s “surprise gains” offer the opportunity to correct conditions that have prevailed since the drop in oil prices in 2014, such as measures to reduce public spending and raise taxes.
The magazine says that Bahrain, whose public debt has risen to 130 percent of GDP in 2020, could reduce its debt by about 12 percentage points this year, assuming oil reaches just $60 a barrel.
Oman’s debt burden is expected to fall by more than 20 percentage points of GDP.
But other countries like Saudi Arabia will seek to provide, rather than spend, oil profits.
Mohammed al-Jadaan, the Saudi finance minister, says that the oil money will not be touched at least this year, and then in 2023 it will be used to increase foreign reserves and income of the sovereign wealth fund.
Bahrain will also use some of its surplus to refinance the investment fund, which it depleted during the pandemic.
However, the pressure to spend will be severe. The UAE has announced that it will double the social welfare budget for poor citizens from 2.7 billion dirhams to 5 billion dirhams.
Eligible families will receive grants for housing and education, as well as a grant to offset higher food and energy costs.
Saudi Arabia may reduce the value-added tax, which has reached 15 percent.
“You have a political tool that you didn’t have before,” says Nasser Saidi, a Lebanese economist who runs a consulting firm in Dubai. “Instead of increasing spending or hiring, you can lower the value added tax.”
But the thinking remains in the post-oil phase. “Of course we are all happy because the oil price is high, but the focus must remain on the non-oil economy,” says an executive at Bahrain’s sovereign wealth fund.
But figuring out what that means in practice is no easy task. Some sovereign wealth managers in the Gulf say they face challenges as they aim to provide oil wealth for future generations, but are expected to provide capital to boost non-oil growth, a task that carries many risks. entails, and this is a problem that the Gulf States are facing.
The report notes that the region is full of megaprojects it considers “failed” from past booms, such as the neighborhood that Saudi Arabia wanted to rival Dubai, and the billions the UAE spent on artificial islands that failed , and the failure of its plans to be a center for semiconductor manufacturing and a center for health tourism.
The Economist says that this time the city “NEOM” is ready to absorb a large part of the oil money, and Saudi Arabia also wants to host the Asian Winter Games in 2029, and Dubai has a plan to create 40,000 jobs in “Metaverse “within five years.
The oil boom is giving Saudi Arabia billions to pay for resorts and theme parks as part of developing the tourism sector, which it says will be the centerpiece of its post-oil economy.
But Saudi officials cannot provide proper assessments confirming that 100 million tourists will choose to visit the kingdom each year.
The report called on the Gulf countries to focus on areas where they enjoy clearer competitive advantages, and suggested investing in water desalination technologies, as Israel has done, and green energy technologies such as hydrogen.
The boom will certainly reshape Gulf relations with the rest of the world, as evidenced by US President Joe Biden’s trip to Jeddah, according to the magazine, which referred to the money Riyadh is spending to polish its reputation in other areas. , such as golf, where it has already established a competition for championships “BGA”, and the Formula 1 race, which has attracted singing stars, such as Justin Bieber and Mariah Carey.
The current crisis in low- and middle-income economies gives the Gulf countries “great influence”. Saudi Arabia and the UAE have already provided loans to poor countries for the past two decades, and in this context have played a role earmarked for advanced economies and international institutions such as the World Bank.
But this may be the “last chance” for the Gulf states. Rich and poor countries alike complain about rising energy costs, making their efforts to reduce dependence on fossil fuels even more urgent.
Kuwaiti investor Ali Al-Salem says: “There is a feeling that the days are numbered … the current state of Europe will not allow it to be in this vulnerable position now … which raises a question : Will the Gulf do it too?”