BDC Snapshots: GCC countries must redouble their efforts to reduce oil dependence

The coronavirus pandemic has created a double challenge for countries of the Gulf Cooperation Council (GCC). Like other countries, their immediate priority is dealing with the pandemic’s public health and economic fallout. In addition, they must tackle the long-term challenges created by lower revenues from oil and natural gas, upon which their economies depend. The International Monetary Fund (IMF) estimates that the average price of oil will fall from $64 in 2019 to $37 per barrel in 2020 due to the global economic impact of the pandemic. This price is lower than the IMF’s pre-pandemic estimates of the “fiscal breakeven price” of oil – the price at which governments are able to balance their budgets – for all six GCC countries.

Since the price of oil peaked in 2013, GCC countries have steadily reduced their reliance on revenues from oil and natural gas by reducing their public outlays and diversifying revenue streams. As a result, between 2017 and 2020, breakeven oil prices have fallen across most GCC countries, from $113 to $96 in Bahrain, $97 to $87 in Oman, $84 to $76 in Saudi Arabia, and $51 to $40 in Qatar. With oil prices expected to remain low, at least through 2021, GCC countries must redouble their fiscal consolidation efforts. However, this alone is not enough. They must also make tangible progress on two fronts that have eluded them in the past, diversifying their economies and improving regional economic integration.

 ^Sources: 

^{International Monetary Fund, “Breakeven Oil Prices,” accessed April 15, 2020, https://data.imf.org/regular.aspx?key=60214246. Notes: Kuwait’s estimate is before the compulsory 10 percent revenue transfer to the Future Generations Fund. Breakeven estimates for 2020 and 2021 do not take into account the economic fallout of the pandemic.} 

^{International Monetary Fund, World Economic Outlook Database, “Crude Oil (Brent), US$ per barrel,” accessed May 10, 2020. https://www.imf.org/external/pubs/ft/weo/2020/01/weodata/weoselser.aspx?a=1&c=001&t=1.}

^{International Monetary Fund, “Regional Economic Outlook: Middle East and Central Asia,” April 2020, https://www.imf.org/en/Publications/REO/MECA/Issues/2020/04/15/regional-economic-outlook-middle-east-central-asia-report.}