IMF Has Some Good and Bad News For the UAE

Here is the part you need to pay attention to.

…He believed that the confidence level in the UAE had gone down at the rapid pace. “The sudden exit of external funds that entered the country on speculation of a currency revaluation resulted in a sharp contraction in liquidity as well as asset-price deflation. This has created a wealth effect. People are not spending either because their assets have depleted or they are uncertain about the future,” Ahmed said.

He said that the UAE would be facing a sharp decline in its current account situation — from a $40 billion surplus in 2008 to a deficit of $15-16 billion in 2009.

The IMF, which has revised its growth forecasts downward four times in the last eight months, said oil exporters in the region, including Algeria, Iran, Iraq, Libya, Sudan and Yemen are likely to turn current account deficits amounting to $30 billion in 2009 after posting $400 billion in surpluses last year.

“Like the UAE, many countries in the region are willing to turn fiscal deficits this year to help their economies weather the crisis,” he said warning that many of the oil producers would run budget deficits if oil prices average $50 a barrel. However, he predicted that oil prices would stay at $50 through 2009 and $60 in 2010.

On why the IMF and other international agencies could not foresee the collapse of the global financial system, Ahmed said his organisation had warned of the dire consequences of the global imbalances and the danger of excessive securitisation. “What we couldn’t predict, however, is the dramatic collapse in business confidence.”

Ahmed believed a realignment of the global financial architecture was on the cards, and said he favoured an internationally coordinated approach in averting similar crisis in future than the creation of a single global financial supervisor.

According to him, a possible global recovery in 2010 was “contingent upon a series of measures.” Worldwide, strong and coordinated policy efforts are needed to revitalise the economy. The financial sector needs to restore normal functioning, monetary policy needs to unlock key credit markets and fiscal policy must be timely and stimulus implementation must be coordinated.”

As long as oil exporters in the region maintain their spending and investment plans, the impact of the global slowdown on their own growth, and on the prospects for the region, will be partly cushioned.”

Ahmed said the IMF had to significantly revise down its growth forecasts since November. “In 2009 there will be no growth in the world, the world economy will be at a standstill and advanced countries will have negative growth and while emerging markets will have some growth there’s virtually no growth overall. This is the worst economic outlook that has been produced by the IMF since it has been created,” he added…SOURCE

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Gulf Countries Will Run a Defecit This Year

Huge surpluses will cushion budget deficits

http://archive.gulfnews.com/articles/08/12/20/10268661.html

12/19/2008 11:03 PM | Reuters

Dubai: Saudi Arabia and other Gulf oil producers will almost certainly run unaccustomed budget deficits next year as they take a double hit from the collapse in oil prices and deep crude output cuts, economists said on Thursday.

Still, huge surpluses amassed during a six-year boom when oil prices rallied as much as seven-fold compared with 2002 levels will allow the biggest oil-exporting region to keep on spending to sustain local economies during a global recession.

“If oil averages $45 (Dh165.3) a barrel next year, then I expect to see significant budget deficits in Bahrain, Oman and Saudi Arabia,” said Simon Williams, senior economist at HSBC in Dubai.

“We need to keep the shortfalls in perspective, however.

“Next year’s deficits won’t even begin to approach the value of the surpluses generated over the past five years.”…

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Oil’s Last Hurrah?: Why the Gulf May Never See $100 a Barrel Oil Again

When the Saudis upped their output to try to save the Republicans in Washington last Summer, few thought that  it would be the beginning of the same time of glut that hit in the early 1990’s when gasoline dropped to under $1.00 per gallon in the U.S.  However, that’s exactly where things are headed now.  It’s another perfect economic storm for the oil producers.  Demand crashed just as the KSA was trying to leverage political power in Washington D.C. through oil.  This was supposed to keep the economy on-track until after the November elections.  However, the wheels came off the economy a few months earlier than expected (in October).  This left OPEC in a very bad position.

Now, the price has fallen so much that there is almost no safety net.  Virtually every OPEC member (with the exception of Abu Dhabi @ $25) are at or below break-even pricing for oil.  This is going to put huge pressure on the Gulf economies going forward.

The bigger question is what happens to price now?  The situation is very similar to the crash of the early 1990’s.  Unless OPEC gets serious about controlling supply, I may take 5-10yrs to get the price where the Gulf economies want it. However, the push to keep some revenues coming in will keep the oil flowing.  OPEC’s problems will be much bigger over this price breathing space.  The world is gearing up to give up oil.  Alternative vehicles of many different types will come online over the next few years.  This will keep a permanent downward pressure on oil prices from about 5 years out when the manufacture and sales of such vehicles reach critical mass.

In the near term, oil will see $20 a barrel long before it reaches $100 again.  Peak oil theory is dead.  The new theory is ‘dead oil’.  Within 20 years the oil market will be relatively insignificant on the global stage. And, unless the Gulf can reposition itself economically there will not be a positive future going forward.

Here is the latest article on oil price from the Gulf News:

Oil dips to four-year low

http://archive.gulfnews.com/articles/08/12/05/10264892.html

12/04/2008 11:35 PM | By Himendra Mohan Kumar and Shakir Husain Staff Reporters

Abu Dhabi/Dubai: The price of global benchmark crude on Gulf News fell to below $46 (Dh168.9) per barrel to its lowest in nearly four years, causing more concern among major producers about the commodity’s sliding value.

Leading members of the Organisation of Petroleum Exporting Countries (Opec) with huge infrastructure projects to fund are worried about their shrinking export revenues.

With the prospects of global economic growth weakening, oil has shed about two-thirds of its value since July when it traded more than $147 per barrel.

In yesterday’s early trading, US light crude for January delivery was down 57 cents to $46.22 a barrel. It earlier touched a low of $45.30, the lowest since February 9, 2005. London Brent crude was down 67 cents at $44.77.

Yesterday Iran said $75 a barrel was a fair price, echoing earlier comments by Saudi Arabia’s King Abdullah Bin Abdul Aziz and Oil Minister Ali Al Nuaimi.

Iran also believes that the market is oversupplied and producers should cut output to balance the fundamentals of supply and demand.

“It is obvious that the market is oversupplied,” Reuters quoted Iran’s Opec governor Mohammad Ali Khatibi as saying.

Opec will announce a production cut at its meeting in Algeria later this month, Qatar’s Energy Minister Abdullah Bin Hamad Al Attiyah told reporters in Dubai on Wed-nesday.

Industry analysts said the fall in oil price could harm the Gulf economies, but for now these countries are cushioned against lower crude prices because of the financial reserves they have accumulated from the previous high revenues.

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