oil price fluctuations and the economies of the gcc kandil presentation.pdfoil price fluctuations...

Research and Statistics Department

June 2016

Oil Price Fluctuations and the Economies of the GCC

Magda Elsayed Kandil

2

1 GDP p03

2 Inflation p10

3 Fiscal Balance p21

4 Credit growth p25

5 Trade p29

6 International Reserves p33

7 Exchange rate developments p36

8 The way forward p39

Table of Content

1. GDP in the GCC countries and the oil price cycle

3

4

Non-oil GDP as a share of total GDP • For the three biggest economies in the GCC, a strong diversification has been observed in the last

decade with exception of the UAE, where the economy has been already well diversified since 2005

• Qatar and Saudi Arabia have increased the share of the non-oil sector by almost 10% of GDP

54% 53% 53% 48% 63% 59% 52% 53% 56% 61%

46% 47%

47%

52% 37%

41%

48%

47% 44% 39%

0

100

200

300

400

500

600

700

800

05 06 07 08 09 10 11 12 13 14

In B

illio

n U

SD

Nominal oil GDP

Nominal non-oil GDP

Source: Central Department of Statistics & Information of

Saudi Arabia

66% 63% 66%

63% 73% 68% 61% 61% 63% 66% 34%

37%

34%

37%

27% 32%

39% 39%

37% 34%

0

100

200

300

400

500

05 06 07 08 09 10 11 12 13 14

In B

illio

n U

SD

Nominal oil GDP

Nominal non-oil GDP

Source: Federal Competitiveness and Statistics Authority of the UAE

40% 43% 43% 45% 55% 48% 42% 43% 46%

51%

60% 57%

57%

55% 45%

52%

58% 57%

54% 49%

0

50

100

150

200

250

05 06 07 08 09 10 11 12 13 14

In B

illio

n U

SD

Nominal oil GDP

Nominal non-oil GDP

Saudi Arabia nominal GDP UAE nominal GDP

Source: IMF Article 4

Qatar nominal GDP

GCC nominal GDP (oil and non oil sectors)

5

Real growth and the oil price cycle

Source: EIA, GCC National Statistical Authorities, IMF

• GDP growth in Saudi Arabia is very pro-cyclical with the oil price (more than 80% correlation)

• UAE shows lesser correlation (̴ 50%) with the oil price, due to more diversification of the economy

Saudi Arabia (Y-o-Y percentage change)

UAE (Y-o-Y percentage change)

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

0%

2%

4%

6%

8%

10%

12%

2006 2007 2008 2009 2010 2011 2012 2013 2014

Total GDP Non-oil GDP Brent price change (rhs)

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

2006 2007 2008 2009 2010 2011 2012 2013 2014

Total GDP Non-oil GDP Brent oil (rhs)

Real GDP growth: Saudi Arabia & UAE

6

Real growth and the oil price cycle (continued)

• Qatar total GDP fluctuates to a lesser extent with the oil cycle (less than 50%

correlation); non-oil GDP seems almost independent of the oil cycle (11%

correlation) due to the heavy gas dependence of the country (gas prices are mainly

long term contracts, the correlation with total GDP growth is of 65% and with non-

oil GDP growth is 40%)

Qatar (Y-o-Y percentage change)

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2006 2007 2008 2009 2010 2011 2012 2013 2014

Total GDP Non-oil GDP Brent price (rhs)

Source: EIA, BP, GCC National Statistical Authorities, IMF

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2006 2007 2008 2009 2010 2011 2012 2013 2014

Total GDP Non-oil GDP LNG prices (rhs)

Qatar (Y-o-Y percentage change)

Real GDP growth: Qatar

7

Real growth and the oil price cycle (continued)

Source: EIA, GCC National Statistical Authorities, IMF

• Kuwait’s total GDP growth is well correlated with the oil price (̴ 50%), reflecting 60% of GDP is

constituted by hydrocarbons

• Oman’s non-hydrocarbon sector growth looks more pro-cyclical than total GDP growth

(correlation of 57% with oil price)

• Bahrain’s GDP growth does not depend on the oil price cycle (less than 20% correlation),

reflecting the limited share of oil output in the economy

Kuwait

Bahrain

-50%-40%-30%-20%-10%0%10%20%30%40%50%

-5%

0%

5%

10%

15%

20%

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14


Oman

-50%-40%-30%-20%-10%0%10%20%30%40%50%

-10%

-5%

0%

5%

10%

15%

20%

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14


-50%-40%-30%-20%-10%0%10%20%30%40%50%

0%

2%

4%

6%

8%

10%

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14


Real GDP growth: Kuwait, Oman & Bahrain

8

Real Growth Forecast vs. Oil price

Source: EIA, Bloomberg

• Consensus projections for Saudi Arabia and UAE are reacting with 2 lags with a correlation of

93% and 83%, respectively, i.e. analysts are factoring the oil dependence of the two largest GCC

economies

• For Qatar, the consensus projections are most sensitive with 2 lags, but they are correlated only at

34%, confirming that markets are considering the importance of gas for Qatar

Saudi Arabia (Y-o-Y growth)

UAE (Y-o-Y growth)

Qatar (Y-o-Y growth)

-60%

-40%

-20%

0%

20%

0%

1%

2%

3%

4%

5%

6%

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15

2015 Forecast 2016 Forecast Brent price (rhs)

-60%

-40%

-20%

0%

20%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15


-60%

-40%

-20%

0%

20%

0%

2%

4%

6%

8%

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15


Real GDP Forecast : Saudi Arabia, UAE & Qatar

9

Real Growth Forecast vs. Oil price (continued)

Source: EIA, Bloomberg

• Kuwait’s GDP growth consensus projections show that analysts’ forecasts are mostly

reflecting the fluctuation in the oil price with one month lag (95% correlation)

• Oman and Bahrain reacted significantly on the 3rd month on account of the Brent price

changes, which confirms the lesser dependence on hydrocarbon, but they may be

indirectly affected by other GCC economies

Kuwait (Y-o-Y growth)

Oman (Y-o-Y growth)

Bahrain (Y-o-Y growth)

-60%

-40%

-20%

0%

20%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15


-60%

-40%

-20%

0%

20%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15


-60%

-40%

-20%

0%

20%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Jan

-14

Mar

-14

May

-14

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar

-15

May

-15

Jul-

15

Sep

-15


Real GDP Forecast : Kuwait, Oman & Bahrain

2. Inflation in the GCC countries and the oil price cycle

10

11

Inflation in the GCC countries and the oil price cycle

Left Axis: Inflation, Right Axis: Oil Price Change

Source: EIA, GCC National Statistical Authorities, IHS Global Insight

• For the period 2006 – 2009, inflation moves with the oil price cycle (correlation of 70% with

monthly data) with exception of Bahrain (correlated only at 12%)

• In the period Jan 2010 to Jun 2014, characterized with high oil price and recovering

economic activity, the relation is not clear between oil price and inflation, with the correlation

in Bahrain, Qatar and UAE being negative. For the three other GCC economies the

correlation stood at around 50%

• Since July 2014, when oil price started falling and dollar appreciating, inflation in all

economies has a very strong correlation with oil price change, with UAE and Kuwait being

negative (due mainly to subsidies removal)

Qatar

-6

-1

4

9

14

Jan

-06

No

v-0

6

Sep

-07

Jul-

08

May

-09

Mar

-10

Jan

-11

No

v-1

1

Sep

-12

Jul-

13

May

-14

Mar

-15

Bahrain

-100%

-50%

0%

50%

100%

Jan

-06

No

v-0

6

Sep

-07

Jul-

08

May

-09

Mar

-10

Jan

-11

No

v-1

1

Sep

-12

Jul-

13

May

-14

Mar

-15

Kuwait

Oman

-20

-10

0

10

20Ja

n-0

6

Oct

-06

Jul-

07

Ap

r-0

8

Jan

-09

Oct

-09

Jul-

10

Ap

r-1

1

Jan

-12

Oct

-12

Jul-

13

Ap

r-1

4

Jan

-15

Saudi Arabia -100%

-50%

0%

50%

100%

UAE

GCC Monthly Inflation (Y-o-Y, %)

12

Pre-crisis inflation (2006-09)


• During 2006 – 2009, inflation moved with the oil price cycle (correlation of ̴70% with monthly data) for Saudi Arabia and the UAE. High oil price is correlated with high government spending and credit growth, reinforced by high food prices and depreciation of the dollar relative to major trading

partners

Saudi Arabia

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

0%

2%

4%

6%

8%

10%

12%

20

06

-01

20

06

-04

20

06

-07

20

06

-10

20

07

-01

20

07

-04

20

07

-07

20

07

-10

20

08

-01

20

08

-04

20

08

-07

20

08

-10

20

09

-01

20

09

-04

20

09

-07

20

09

-10

Inflation monthly Y-o-Y Brent price (rhs)

UAE

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

20

06

-01

20

06

-04

20

06

-07

20

06

-10

20

07

-01

20

07

-04

20

07

-07

20

07

-10

20

08

-01

20

08

-04

20

08

-07

20

08

-10

20

09

-01

20

09

-04

20

09

-07

20

09

-10


Monthly Inflation (Y-o-Y, %): Saudi Arabia & UAE

13

Pre-crisis inflation (2006-09) (continued)

Left Axis: Inflation, Right Axis: Oil Price Change/LNG price change

Source: EIA, GCC National Statistical Authorities, IHS Global Insight, BP, Bloomberg

• In Qatar, the correlation is slightly lower with the oil price (44%), as well with the LNG price (27%). This is the result of more diversified hydrocarbon sector – oil being less important than gas and LNG price being fixed with long term contracts instead of depending on spot price

LNG in Qatar Oil in Qatar

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-15%

-10%

-5%

0%

5%

10%

15%

20%

20

06

-01

20

06

-04

20

06

-07

20

06

-10

20

07

-01

20

07

-04

20

07

-07

20

07

-10

20

08

-01

20

08

-04

20

08

-07

20

08

-10

20

09

-01

20

09

-04

20

09

-07

20

09

-10

Inflation monthly Y-o-Y LNG price (rhs)

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

-15%

-10%

-5%

0%

5%

10%

15%

20%

20

06

-01

20

06

-04

20

06

-07

20

06

-10

20

07

-01

20

07

-04

20

07

-07

20

07

-10

20

08

-01

20

08

-04

20

08

-07

20

08

-10

20

09

-01

20

09

-04

20

09

-07

20

09

-10


Monthly Inflation (Y-o-Y, %): Qatar

14

Pre-crisis inflation (2006-09) (continued)



Kuwait (Y-o-Y)

Oman (Y-o-Y)

Bahrain (Y-o-Y)

-80%-60%-40%-20%0%20%40%60%80%100%

0%

2%

4%

6%

8%

10%

12%

14%

20

06

-01

20

06

-05

20

06

-09

20

07

-01

20

07

-05

20

07

-09

20

08

-01

20

08

-05

20

08

-09

20

09

-01

20

09

-05

20

09

-09

Inflation monthly Brent price (rhs)

-80%-60%-40%-20%0%20%40%60%80%100%

0%

2%

4%

6%

8%

10%

12%

14%

16%

20

06

-01

20

06

-05

20

06

-09

20

07

-01

20

07

-05

20

07

-09

20

08

-01

20

08

-05

20

08

-09

20

09

-01

20

09

-05

20

09

-09


-100%

-50%

0%

50%

100%

-2%

0%

2%

4%

6%

8%

10%

20

06

-01

20

06

-05

20

06

-09

20

07

-01

20

07

-05

20

07

-09

20

08

-01

20

08

-05

20

08

-09

20

09

-01

20

09

-05

20

09

-09


• The correlations are high in Kuwait and Oman with the oil price (correlation of 7̴0%). Bahrain is an exception ( the correlation is only of 12%) due mainly to the limited oil production

Monthly Inflation (Y-o-Y, %): Kuwait, Oman & Bahrain

15

Post-crisis inflation and high oil prices (Jan 2010 - Jun 2014)


Source: EIA, GCC National Statistical Authorities, IHS Global Insight, GCCSTAT

• After the Global Financial Crisis there is no evidence of relationship (correlation of -18%)

between the inflation rate and oil price fluctuation in the GCC as a whole, due to the decrease

of the food prices combined with the decline in economic activity during the crisis

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

0%

1%

2%

3%

4%

5%

6%

7%

20

10

-01

20

10

-03

20

10

-05

20

10

-07

20

10

-09

20

10

-11

20

11

-01

20

11

-03

20

11

-05

20

11

-07

20

11

-09

20

11

-11

20

12

-01

20

12

-03

20

12

-05

20

12

-07

20

12

-09

20

12

-11

20

13

-01

20

13

-03

20

13

-05

20

13

-07

20

13

-09

20

13

-11

20

14

-01

20

14

-03

20

14

-05

Food inflation Inflation less housing Brent price (rhs)


16


Source: EIA, GCC National Statistical

Authorities, IHS Global Insight, GCCSTAT

• The oil price change has a different relation for Saudi Arabia, UAE and Qatar

• In the UAE and Qatar, inflation is negatively correlated respectively at -25% and

-59, suggesting a dominant effect of slow economic activity on inflation

• On the other hand, Saudi’s inflation is correlated at 59%, meaning that in a period

of high oil price, inflation was rising as well in consistency of high share of oil

GDP and the dominance of public sector spending

Saudi Arabia (Y-o-Y)

UAE (Y-o-Y)

Qatar (Y-o-Y)

-30%

-10%

10%

30%

50%

70%

-6%

-4%

-2%

1%

3%

20

10

-01

20

10

-05

20

10

-09

20

11

-01

20

11

-05

20

11

-09

20

12

-01

20

12

-05

20

12

-09

20

13

-01

20

13

-05

20

13

-09

20

14

-01

20

14

-05


Monthly Inflation (Y-o-Y, %): Saudi Arabia, UAE and Qatar

-30%

-10%

10%

30%

50%

70%

2%

3%

4%

5%

6%

7%

8%

20

10

-01

20

10

-04

20

10

-07

20

10

-10

20

11

-01

20

11

-04

20

11

-07

20

11

-10

20

12

-01

20

12

-04

20

12

-07

20

12

-10

20

13

-01

20

13

-04

20

13

-07

20

13

-10

20

14

-01

20

14

-04


-30%

-10%

10%

30%

50%

70%

-1%

0%

0%

1%

1%

2%

2%

3%

20

10

-01

20

10

-04

20

10

-07

20

10

-10

20

11

-01

20

11

-04

20

11

-07

20

11

-10

20

12

-01

20

12

-04

20

12

-07

20

12

-10

20

13

-01

20

13

-04

20

13

-07

20

13

-10

20

14

-01

20

14

-04



17 Left Axis: Inflation, Right Axis: Oil Price Change



• Similarly to the UAE and Qatar, Bahrain’s inflation had a negative correlation with the oil price change of -64%, suggesting a more dominant effect of slow economic activity

• Kuwait and Oman, on the other hand, had a positive correlation of

respectively 45% and 44%, suggesting a more dominant effect of higher oil price on liquidity and government spending

Kuwait (Y-o-Y)

Oman (Y-o-Y)

Bahrain (Y-o-Y)

-30%

-10%

10%

30%

50%

70%

0%

2%

4%

6%

20

10

-01

20

10

-04

20

10

-07

20

10

-10

20

11

-01

20

11

-04

20

11

-07

20

11

-10

20

12

-01

20

12

-04

20

12

-07

20

12

-10

20

13

-01

20

13

-04

20

13

-07

20

13

-10

20

14

-01

20

14

-04


-30%

-10%

10%

30%

50%

70%

-3%

-1%

1%

3%

5%

20

10

-01

20

10

-04

20

10

-07

20

10

-10

20

11

-01

20

11

-04

20

11

-07

20

11

-10

20

12

-01

20

12

-04

20

12

-07

20

12

-10

20

13

-01

20

13

-04

20

13

-07

20

13

-10

20

14

-01

20

14

-04


-20%

0%

20%

40%

60%

80%

1%

2%

3%

4%

5%

6%

20

10

-01

20

10

-04

20

10

-07

20

10

-10

20

11

-01

20

11

-04

20

11

-07

20

11

-10

20

12

-01

20

12

-04

20

12

-07

20

12

-10

20

13

-01

20

13

-04

20

13

-07

20

13

-10

20

14

-01

20

14

-04


Monthly Inflation (Y-o-Y, %): Kuwait, Oman and Bahrain


18

Post-crisis inflation and low oil prices (Jul 2014 -present)


Source: EIA, GCC National Statistical Authorities, IHS Global Insight, GCCSTAT

• Since the decline of the oil price in mid-2014, significantly below the USD

100/barrel mark, overall GCC inflation has been moving in line with the oil price

change (correlation of 82%)

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

0%

1%

1%

2%

2%

3%

3%

4%

Food inflation Inflation less housing Brent price (rhs)


19

Post-crisis inflation and low oil prices (Jul 2014-present)




• In the UAE, inflation has been moving in opposite direction to the oil price change,

with a correlation of -84%. This was mainly due to the removal of subsidies and

increase in rent prices

• For Saudi Arabia and Qatar, the correlations remained positive at 88% and 78% respectively,

due to lower government spending and less credit growth in response to lower oil price

Saudi Arabia (Y-o-Y)

UAE (Y-o-Y)

Qatar (Y-o-Y)

-65%

-55%

-45%

-35%

-25%

-15%

-5%

5%

0%

1%

2%

3%

4%

5%Inflation monthly Brent price (rhs)

Monthly Inflation (Y-o-Y, %): Saudi Arabia, UAE and Qatar

-65%

-55%

-45%

-35%

-25%

-15%

-5%

5%

2%


-65%-55%-45%-35%-25%-15%-5%5%

2%

3%

4%


20 Left Axis: Inflation, Right Axis: Oil Price Change

Source: EIA, GCC National Statistical Authorities,

IHS Global Insight, GCCSTAT

• For Kuwait, inflation has been moving in the opposite direction to the oil price

change with a correlation of -52% due to the subsidy removal effect

• Oman’s and Bahrain’s inflation had a positive correlation with the oil price change

of 50% and 60% respectively, suggesting the dominant effect of less government

spending and slower credit growth

Kuwait (Y-o-Y)

Oman (Y-o-Y)

Bahrain (Y-o-Y)

-65%

-55%

-45%

-35%

-25%

-15%

-5%

5%

-1%

0%


-65%

-45%

-25%

-5%

1%

2%

3%


-65%

-55%

-45%

-35%

-25%

-15%

-5%

5%

2%

3%


Monthly Inflation (Break down)

Post-crisis inflation and low oil prices (Jul 2014-present)

3. Fiscal balance in the GCC countries and the oil price cycle

21

22

GCC Oil revenue (% of total Fiscal revenue)

Source: EIA, GCC National Statistical Authorities, IHS Global Insight, IMF Article 4

Oil revenues as a share of Total revenues • In all GCC countries, there is a decline of the share oil revenues in the total fiscal

income, since 2014 and especially in 2015, due to lower oil prices. However, oil

revenues continue to be a main source of income for the governments of GCC

• For the largest economies in GCC, the decline in 2015 for the oil revenues as a

share of total is from 86% to 81% for Saudi Arabia, and from 64% to 53% for the

UAE

23

GCC Oil revenue change (Y-o-Y, %)

Oil revenues

• The correlation between oil price change and oil revenues is around 95% for all GCC countries, except for Qatar where the correlation is 30% due to

the higher importance of LNG for the economy


24

GCC Fiscal Balance (% of GDP)

Fiscal Balance • The correlation between the fiscal balance and oil price change is 75% for

Bahrain, 86% for Oman, 68% for Kuwait, 42% for Qatar, 85% for UAE and 87% for Saudi Arabia

• Fiscal policies (revenue and expenditures) are very much procyclical with the

oil price cycle


4. Credit growth in the GCC countries and the oil price cycle

25

26

GCC Public credit growth (% of GDP)

Source: EIA, GCC Central Banks

• Government loans at banks represent a small share of total loans, with the exception of the UAE (24%) and Qatar (36%)

• Correlations between credit growth are negative for Bahrain (correlation of -79%) and the UAE (correlation of -13%),implying more borrowing with less oil revenues.

• Correlations for other countries’ are pro-cyclical with the oil price change

Public sector credit

27

GCC Private credit growth (% of GDP)


Private sector credit • Private sector credit growth experienced a steady growth, CAGR¹ of 9%, for Bahrain, 13%

for Oman, 6% for Kuwait, 18% for Qatar, 9% for the UAE and 11% for Saudi Arabia, for the

years 2010-15.

• Private credit growth is highly correlated with the oil price change.

• For the three major economies in the GCC, the correlation is of 37% for Qatar, 32% for the

UAE and 47% for Saudi Arabia.

• Banks’ risk assessment and, ability and readiness to lend are procyclical with the oil price

movements and that private sector is leveraging less in periods of low oil price, which

amplifies the economic downturns.

¹:The CAGR is the mean annual growth rate (geometric mean) over a specified period of time longer than one year. It is a more precise measure for

average growth than the arithmetic mean

28

GCC Total credit growth (% of GDP)


Total credit • Total loans also show a procyclical behavior with the oil price change.

• Correlations with oil price fluctuations are of 66% for Qatar, 31% for the UAE and 48% for Saudi Arabia

• Credit, being a driver of growth, is following the oil cycle, further reinforcing the decline of growth when oil price is falling

5. Trade of the GCC countries and the oil price cycle

29

30

Hydrocarbons export as a share of total exports

Hydrocarbon exports

Source: EIA, IMF Article 4

• For the four major economies of the GCC, hydrocarbon exports as a share of total

exports, fluctuate in line with the oil price cycle.

• The share of UAE oil exports correlates with oil price change at 91%, attesting to a

highly diversified structure of exports.

• On the other hand, Kuwait, Qatar and Saudi Arabia, there is limited scope to grow

non-energy exports during periods of decline in the oil price, preserving a high

share of energy exports in total exports.

• For other countries, the correlation is much lower (Saudi Arabia is at 14%).

31

GCC Export (% of GDP)

Exports

Source: EIA, IMF Article 4, IHS Global Insight

• Across GCC countries, the share of exports to GDP is fluctuating in line

with the oil price change, attesting to high dependency on oil exports. • Saudi Arabia’s exports are correlated at 80% with the oil price. • An exception is for the UAE, where the correlation is negative (-18%) as

the growth of the non-oil sector has decreased the share of oil exports to GDP over time.

32

GCC Current account balance

Current account balance

• The current account balances (% of GDP) fluctuate in line with the oil price change.

• Correlations are generally high for Bahrain (73%) Kuwait (72%) Oman (87%) Qatar (47%) and Saudi Arabia (86%).

• The lower correlation for the UAE (37%) attests to less dependency on oil exports and more diversified receipts in the current account

Source: EIA, IMF Article 4, IHS Global Insight

6. International Reserves of the GCC countries and the oil price cycle

33

34

GCC International Reserves

International Reserves

Source: EIA, IMF, World Bank, IHS Global Insight

• Between 2006-2015, international reserves have been growing at a CAGR of 18%

for Qatar, 10% for Saudi Arabia and 13% for the UAE

• International reserves continue to grow even at times of oil downturn

• The correlation with oil price change is -48% for Qatar, -28% for Saudi Arabia and

-47% for the UAE.

• The three biggest economies in the GCC have adequate reserves to protect local

currencies at times of speculative attacks

35

GCC International Reserves

International Reserves

Source: EIA, IMF, World Bank, IHS Global Insight

• International reserves for the three other GCC states – Bahrain, Kuwait and Oman are also negatively correlated with the oil price change, at -14%, -

47% and -34%

• Their reserves have been also growing during the last 10 years, providing a buffer to maintain their pegged exchange rate regimes

7. Exchange rates in the GCC countries and the oil price cycle

36

37

USD Effective Exchange Rate

Source: EIA, GCC National Statistical Authorities, IHS Global Insight, BIS

• The dollar effective exchange rates are moving in opposite directions with the oil price

• The REER has a correlation of -66% and the NEER of -76% with the oil price

• Hence, the GCC currencies’¹ NEERs are negatively correlated with the oil price change, i.e.

in a period of oil price fall, the currencies are appreciating in nominal terms.

USD Effective Exchange Rate vs. Brent price change

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

90

95

100

105

110

115

120

Jan

-07

Jul-

07

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

USD vs Brent price

REER NEER Oil price change (%)

¹: All currencies in GCC with exception of the Kuwaiti Dinar (KWD) are pegged to the USD. The KWD is pegged to a basket, where around

90% of the weight is attributed to the USD

38

Exchange rate in the GCC countries and the oil price cycle

Left Axis: REER, Right Axis: Oil Price Change


• Correlation between the REERs for the GCC with the oil price are quite different.

• Countries with positive correlations are composed of Kuwait, Oman and Saudi Arabia, where

the correlations are 43%, 31% and 38%.

• Countries with negative correlations comprise Bahrain, Qatar and the UAE, with correlations

-49%, -24% and -14%

• Despite negative correlation between the NEER and the oil price across GCC, variation in

the REERs’ correlations comes from the relations of countries’ inflation with the oil price

-30%

-20%

-10%

0%

10%

20%

30%Bahrain

-60%

-40%

-20%

0%

20%

40%

60%Kuwait

-30%

-20%

-10%

0%

10%

20%

30%Qatar Oman

-60%

-40%

-20%

0%

20%

40%

60%UAE

GCC Real Effective Exchange Rate

2007 2008 2009 2010 2011 2012 2013 2014

Saudi Arabia

8. The way forward in the GCC

39

40

Oil still plays an important role in the GCC economies

• GCC economies remain highly dependent on

oil price fluctuations

• The primary channel is through oil revenues in

the budget and the impact on the fiscal

spending

• The procyclical fiscal stance increases

inflationary pressures during an oil price boom

at the risk of slowing down economic activity

with the decline in the oil price

41

The way foreword – becoming less dependent on oil

• Fiscal rules should limit spending during a

boom to provide scope for stabilization during

a recession

• GCC should aim towards further

diversification of the economy to reduce

dependency on oil price fluctuations

• Reforms of public finance are necessary to

reduce dependency of fiscal spending on oil

revenues

42

The way foreword towards stable growth

• Priorities for monetary policy should be focused on

safeguarding the stability of the exchange rate and

developing macro-prudential policy instruments to

strike the balance between credit growth and financial

stability

• Structural reforms should aim at deepening the

financial markets, increasing productivity and

development of SMEs

• Further, regulations should aim at stemming

distortions that the increase inflationary pressures

counter economic cycles

Thank you

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