As net hydrocarbon exporters, GCC countries have taken a hit from the falling oil price, threatening national budgets.

Saudi Arabia, for example, needs a fiscal break-even oil price of US$99 for its national budget to balance, according to the latest figures from Deutsche Bank, while the break-even price for Oman is even higher at $101, and a mighty $136 in Bahrain. The UAE is better placed with a break-even price of $80, as are Kuwait at about $82 and Qatar at $71.

Another factor in favour of the UAE is that its economy is the most diverse in the GCC, with oil and gas contributing only 31 per cent of total exports, according to Standard Poor’s.

But weaker oil prices could still hit its public finances, says Rachel Ziemba, director of global emerging markets at Roubini Global Economics. “Especially if they coincide with a softening of construction and property activity.”

Cheaper oil may benefit the UAE as well, Ms Ziemba says. “Its economy will benefit from weaker commodity prices, as the cost of food and energy falls, putting money into consumers’ pockets.”

If oil stays low, it will push the government to further diversify the UAE economy, says Tom Elliott, deVere Group’s International Investment Strategist. “This may be the trigger the GCC needs to broaden its tax base and become less dependent on oil and gas.”

Mr Elliott says the threat to the UAE is limited. “The ability of the government to stand behind the region’s banks and property companies is not in doubt, although local companies may find borrowing costs rise.”

business@thenational.ae

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