Can UAE Cover Its Deficit Indefinitely?

[Marina Schwarz + 1,576]

I came across this today and I was a bit, well, puzzled.

"The four largest Gulf economies — Saudi Arabia, the UAE, Kuwait and Qatar — are in fact well-positioned to withstand low oil prices. Capital Economics’ calculations found that even if prices dropped to $30 a barrel, “all else equal the Gulf countries could finance large current account deficits from their FX savings for at least a decade — the UAE could do so indefinitely.”

I admit to not bee particularly good with numbers but this, especially the last part, sounds impossible to me. Would anyone good with numbers care to enlighten me?

[jaycee + 348]

36 minutes ago, Marina Schwarz said:

I came across this today and I was a bit, well, puzzled.

"The four largest Gulf economies — Saudi Arabia, the UAE, Kuwait and Qatar — are in fact well-positioned to withstand low oil prices. Capital Economics’ calculations found that even if prices dropped to $30 a barrel, “all else equal the Gulf countries could finance large current account deficits from their FX savings for at least a decade — the UAE could do so indefinitely.”

I admit to not bee particularly good with numbers but this, especially the last part, sounds impossible to me. Would anyone good with numbers care to enlighten me?

I googled the text and found it on yahoo it smells wrong I agree. Who commissioned the report is the most obvious question? My guess would be Saudi, UAE. etc

Edited November 28, 2018 by jaycee

[JunoTen + 118]

Can you share the source ? 

[Marina Schwarz + 1,576]

Oh, sure, I forgot to hyperlink. Here: https://www.cnbc.com/2018/11/27/oil-price-slump-wont-hit-most-gulf-states---but-theyre-far-from-out-of-the-woods.html

@jaycee, that was my first question, too.

[Rasmus Jorgensen + 1,169]

3 hours ago, Marina Schwarz said:

I came across this today and I was a bit, well, puzzled.

"The four largest Gulf economies — Saudi Arabia, the UAE, Kuwait and Qatar — are in fact well-positioned to withstand low oil prices. Capital Economics’ calculations found that even if prices dropped to $30 a barrel, “all else equal the Gulf countries could finance large current account deficits from their FX savings for at least a decade — the UAE could do so indefinitely.”

I admit to not bee particularly good with numbers but this, especially the last part, sounds impossible to me. Would anyone good with numbers care to enlighten me?

Were you being serious or just being a linguist? 

[Rodent + 1,424]

9 minutes ago, Rasmus Jorgensen said:

Were you being serious or just being a linguist? 

Serious, I'm sure. I'm puzzled by your inquiry.

[Rasmus Jorgensen + 1,169]

Just now, Rodent said:

Serious, I'm sure. I'm puzzled by your inquiry.

I read the article. Strange choice of words for sure. But main take-away, to me, seemed to be that because ME has so low break-even they can keep producing and sustain relative social stability even at low prices. Maybe I just super-imposed my own understanding. 

[Rodent + 1,424]

3 minutes ago, Rasmus Jorgensen said:

I read the article. Strange choice of words for sure. But main take-away, to me, seemed to be that because ME has so low break-even they can keep producing and sustain relative social stability even at low prices. Maybe I just super-imposed my own understanding. 

well, I do think there's some fancy footwork with the figures. mostly, I think the Middle East needs oil revenue to subsidize daily living for its citizens who are used to the perks. these government expenses are substantial, and Saudi Arabia for one had to do some serious reshuffling as to how it spends its money. While their true break even might be very low, the real break-even which includes how much money they need to continue government programs as usual, is significantly higher. of course there is very little transparency here, and we are unlikely to know the cut off between profit and floundering. 

[Rasmus Jorgensen + 1,169]

4 minutes ago, Rodent said:

well, I do think there's some fancy footwork with the figures. mostly, I think the Middle East needs oil revenue to subsidize daily living for its citizens who are used to the perks. these government expenses are substantial, and Saudi Arabia for one had to do some serious reshuffling as to how it spends its money. While their true break even might be very low, the real break-even which includes how much money they need to continue government programs as usual, is significantly higher. of course there is very little transparency here, and we are unlikely to know the cut off between profit and floundering.

Agree. 

Just think that if / when shit hits the fan ME populations can take more hardship than Western. I migth be wrong though. 

[Dan Warnick + 6,100]

3 hours ago, Rasmus Jorgensen said:

Agree. 

Just think that if / when shit hits the fan ME populations can take more hardship than Western. I migth be wrong though. 

When one already knows the taste of the whip, one falls into line with Master's wishes much more quickly, I should think.

[TXPower + 643]

3 hours ago, Rasmus Jorgensen said:

Agree. 

Just think that if / when shit hits the fan ME populations can take more hardship than Western. I migth be wrong though. 

If you are talking about the average, poor ME citizen, I agree.  If you are talking about the well cared for folks in Saudi, UAE etc, on the oil money dole, not so much.  Largesse creates entitled, soft people who scream first, loudest and often when the money runs out. 

[shadowkin + 584]

16 hours ago, Marina Schwarz said:

I came across this today and I was a bit, well, puzzled.

"The four largest Gulf economies — Saudi Arabia, the UAE, Kuwait and Qatar — are in fact well-positioned to withstand low oil prices. Capital Economics’ calculations found that even if prices dropped to $30 a barrel, “all else equal the Gulf countries could finance large current account deficits from their FX savings for at least a decade — the UAE could do so indefinitely.”

I admit to not bee particularly good with numbers but this, especially the last part, sounds impossible to me. Would anyone good with numbers care to enlighten me?

These are back of the napkin calculations done in 5 min but it gives you an idea of why even a decade isn't possible. Take the UAE.

Projected budget for 2018 is $119 billion versus $113 billion revenue for ~ %1.5 of GDP deficit. Basically a balanced budget.

Assume an average $60/barrel oil for this revenue and 80% of budget (no idea if this is the case) financed by oil revenue .8 x 119 ~ $95 billion

Thus an oil price of $30 means they would be $95/2 ~ $48 billion short annually. Total FX reserves as of Oct 2018 are ~ $89 billion. So to cover an annual deficit of $48 billion they could only do so for  $89/48 ~ 2 years

Now assume only 50% of their budget (doubtful) is financed by oil revenue .5 x 119 ~ $60 billion. Under $30/barrel oil scenario they would have to cover $30 billion annually. This could be done for $89/30 ~ 3 years. 

EDIT: Originally I had $327 billion in FX reserves but that was in AED. Converted to USD it is ~ $89 billion. This makes UAE's situation worse.

Info from:

https://www.khaleejtimes.com/uae-budget-deficit-narrows-in-2018-will-balance-in-2019

https://tradingeconomics.com/united-arab-emirates/foreign-exchange-reserves

Edited November 29, 2018 by shadowkin
correction

[John Foote + 1,135]

The UAE, Kuwait, and Qatar have relatively small populations of citizens, so they probably good handle lower for longer. Additionally they are relatively friendly business environments with functioning legal systems which KSA lacks to western standards. KSA has 20 million residents, another 10 million foreign workers, most with jobs the residents don't want, and the education system hasn't prepared enough for the jobs the high end west pats typically do. The have high youth unemployment, and they consume a third of what they pump, and are binging on awarding mega-projects which they used to pay-as-they-go to build.  They are now getting serious about bonds. If you could address the consumption, and scale back the need mega-projects they could last longer, but $30 a barrel, that would get seriously painful in just a few years. Lift costs aren't the issue.

Vision 2030 at it's core is a great idea an needed. But economics can't be dictated and engineered. At least not the way they are currently attempting to.

[Marina Schwarz + 1,576]

Thank you for taking the trouble, @shadowkin

@Rasmus Jorgensen, I'm a linguist 24/7 so the answer to your question is "both."  You can't just flash words like "indefinitely" around if you don't mean them. That part sounded just ridiculous and now that we have figures, it is ridiculous, which makes the interesting question of whether this Capital Economics research is legitimate and unbiased even more interesting.

As regards the response of the population, Iran and Iraq will endure. They've been doing this for so long. The rest? Remember the cries to high heaven when Riyadh tried to implement some austerity measures? The drama! No wonder they removed them as soon as prices started climbing back up.