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GCC to sustain economic growth despite plunging oil prices

International Monetary Fund report says the sharp drop in oil prices will cost the GCC around $300bn during 2015.

GCC countries are expected to sustain economic growth despite losses in oil export revenues caused by plunging oil prices, says a report.

Emerging Asia specialist investment firm, Asiya Investment, says in its latest report the fiscal conditions of the GCC countries are significantly affected by the decline in oil prices because of its heavy dependence on oil export revenues.

According to a new International Monetary Fund report, the sharp drop in oil prices will cost the GCC around $300bn during 2015.

The GCC’s revenue losses are estimated at 19 per cent of total GDP, it adds.

Based on IMF estimates of the oil prices GCC countries need to attain fiscal breakeven, all GCC countries with the exception of Kuwait will sustain fiscal deficits if oil prices remain at current levels.

However, losses in oil export revenues are unlikely to cause significant economic slowdown in 2015 in the Gulf region, as GCC countries can benefit from their large accumulated fiscal and external reserves to soften out budgetary shocks from the drop in revenues.

Current estimates suggest GCC reserves can finance substantial deficits for at least five years, Asiya Investments says. Fiscal spending, a key driver of economic growth in the region, will probably remain unchanged.

Among the most fiscally flexible countries are Kuwait and Qatar, owing to their low fiscal breakeven even oil prices ($53.3 and $77.6 respectively), and to their relatively large reserves.

However, Oman and Bahrain will struggle during the current fall in oil prices, with breakeven prices at 107.4 and 116.5 respectively, which will be difficult to sustain if current prices persist.