Page 236 - Aamir Rehman - Dubai & Co Global Strategies for Doing Business in the Gulf States-McGraw-Hill (2007)

218 Dubai & Co.

Figure 8.2 Gulf states’ budgets likely to face a moment of truth (Source:
Based on US Energy Information Administration “Reference Case” for
oil prices and author analysis)

Even at $40 per barrel, Gulf governments can continue to run budget
surpluses. Over time, however, demands on government budgets
can be expected to rise steadily as population increases, and at some
point, barring unforeseen circumstances or fundamental changes,
Gulf governments are likely to face a moment of truth at which
energy revenue alone ceases to provide them with budget surpluses.
Figure 8.2 is only an illustration of the general phenomenon.
Each country’s situation is different, and some will face budget
squeezes long before others will. Saudi Arabia, with its large popu-
lation and landmass, requires an oil price of around $38 per barrel
10
to maintain a surplus. The UAE, with a far smaller population and
substantial oil reserves, needs a price of only about half that amount
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to balance its budget. The UAE’s growth in population means its
budgetary demands are climbing very quickly; however, it should
have substantial investments to tide it over. Bahrain’s oil reserves
are very limited and, depending on production strategies, may not
last much more than a decade. Qatar’s abundant natural gas has
put it in a very strong position. Kuwait likewise maintains a strong
outlook and has a large savings pool. The moment-of-truth analysis
is therefore less applicable in some countries, where its time frame
is much more prolonged. Nonetheless, all GCC states are aware that
today’s surpluses cannot be relied on forever.