GULF CO-OPERATION COUNCIL: A REAL WINNER OF THE GLOBAL ECONOMIC HEADWINDS?

GULF CO-OPERATION COUNCIL: A REAL WINNER OF THE GLOBAL ECONOMIC HEADWINDS?

After a period of pessimism regarding global oil demand, prices began to rise following the announcement from Russia and, particularly, Saudi Arabia, regarding the extension of their production cuts until the year’s end. Nevertheless, not all countries will benefit equally from this slight increase in oil prices.

Due to their elevated levels of public debt, underlying fiscal vulnerabilities, and comparatively restricted natural resources in contrast to other nations in the region, Bahrain and Oman must remain vigilant. In 2023, Bahrain is projected to maintain the highest public debt-to-GDP ratio in the region at 125%. Given its high fiscal breakeven oil price, estimated at around USD 125 per barrel for 2023, authorities have initiated discussions on measures to mitigate further widening of the budget deficit. Despite recurrent current account surpluses, the substantial fiscal deficit and the necessity to uphold the currency peg have put pressure on Bahrain’s foreign exchange reserves. While reserves covering three months of imports are typically deemed as the minimum acceptable level, Bahrain’s reserves are projected to only cover 1.5 months of imports in 2023.

Oman’s debt dynamics appear to be more balanced, but it grapples with structural fiscal weaknesses, primarily due to limited natural resources. Since the drop in oil prices in 2015 and 2016, Oman has consistently recorded twin deficits in both the current and fiscal accounts.

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