Era of huge fiscal surpluses
The phase of huge fiscal surpluses in the Gulf may be coming to an end though the states’ public finances are in a better shape than they were before the 1998 drop in oil prices, says a report.

Oil prices have fallen steeply to around $60 a barrel for Brent from a high of over $147 a barrel on July 3, 2008. Brent will average $60 per barrel in 2009, which is still relatively high by historical standards, said the Fitch Ratings report.
GCC governments have saved much of the oil price windfall in recent years, but they have also increased spending, pushing up breakeven oil prices. GCC sovereigns’ breakeven oil prices vary, depending on their oil wealth and how much oil revenue they choose to spend, it said.
In Saudi Arabia (AA-), there would be a breakeven price of $50 per barrel in 2008; Kuwait (AA), which is midway through its April 2008-March 2009 fiscal year would break even at $42 per barrel and Abu Dhabi (‘AA’) at $31 per barrel.
In Bahrain (A), the breakeven price is higher. Based on estimated spending for 2008, the budget would balance at $74 per barrel. Bahrain’s oil wealth is smaller than that of its neighbours, but its budget dependence on oil is similar.
With the exception of Kuwait and Qatar, the oil price fall has come as GCC governments draw up their 2009 budgets and contemplate moderation in spending growth. 
Fitch believes that Abu Dhabi, Saudi Arabia and Kuwait will avoid major cuts to spending plans in 2009, and will be content to run much lower surpluses - in the case of Saudi Arabia and Abu Dhabi in single digits of GDP. The agency believes governments will wait and see what happens to oil prices next year and will then make a more gradual adjustment. For the most part, they have the luxury of being able to do this. Bahrain will have to cut spending to adjust to lower oil prices, and the latest draft of the budget, based on an oil price of $60 per barrel, shows the authorities are prepared to do this.
Fiscal surpluses in the region are much higher than in 1998 - sovereign balance sheets have strengthened and sovereign debt is very low, while assets held in sovereign wealth funds (ADIA in Abu Dhabi, and the KIA in Kuwait) and Saudi Arabia’s central bank (Sama) have soared.
Abu Dhabi and Kuwait’s government non-reserve external assets exceeded 200 per cent of GDP at the end of 2007, while Saudi Arabia’s were 90 per cent of GDP. Governments can draw on part of these holdings if necessary.
Fitch notes that Bahrain, which has domestic government deposits of up to 20 per cent of GDP, but no publicly disclosed non-reserve external assets, has less of a cushion than the larger oil producers.
Poorly-performing global stock markets (the benchmark MSCI World Index fell 40 per cent in January-October) will have caused sovereign wealth funds in the region (SWFs) to suffer capital losses on their equity holdings in 2008. However, on the plus side, there will have been gains on the stock of US Treasuries.
SWFs vary in their degree of risk appetite, but hold substantial equity investments alongside US Treasuries and other fixed income assets. Government non-reserve external assets continue to provide essential support to ratings.

Oman inflation eases
Annual inflation in Oman eased slightly to 13.4 per cent in September from 13.7 per cent in August, led by food costs and rents, official data showed.
The Oman consumer price index hit 128.5 points on September 30 compared to 113.30 points a year earlier, the Ministry of National Economy said in a report on its website.
Food, beverage and tobacco costs — which account for almost a third of the index — jumped 23.9 per cent, while rents advanced 18.8 per cent.

Saudi 16th in business-friendly list
The World Bank and International Finance Corporation’s (IFC) report on the business-friendliness of countries placed the Kingdom of Saudi Arabia at 16th and the UAE at 46th place in a list of 181 countries.
The ‘Doing Business’ project evaluates 181 economies based on 10 indicators including the time and cost to meet government requirements in starting and operating a business, trading across borders, paying taxes, and closing a business.
The rankings do not count areas such as macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions, or crime rates.
“Saudi Arabia made it easier to start a business by continuing to simplify formalities for commercial registration and reducing registration fees by 80 per cent,” said the report.
The list was topped by Singapore, followed by New Zealand, the US, Hong Kong, Denmark, the UK, Ireland, Canada, Australia and Norway.
Congo was the least business-friendly country.

Dubai debt ‘manageable’
Dubai International Capital (DIC) has said that Dubai’s estimated $70 billion debt was “manageable” and the Gulf’s commercial hub would not need to be “bailed out” as the credit crunch hits the world’s top oil exporting region.
“It’s not a question of them (Gulf investors) coming to bail out Dubai. They will invest in Dubai if they see opportunities coming up,” said chief executive Sameer Al-Ansari on the sidelines of the World Economic Forum in Dubai.
He added that Gulf investors had a stake in the emirate’s success, because they had already invested in it.
Ansari also said DIC, which is owned by the ruler of Dubai, was beginning to turn its attention back to Europe and United States as valuations were beginning to look better, although there was still some room for assets to bottom out.

Kuwait launches bailout fund
Kuwait has launched a bailout fund for investment firms as shockwaves from the global financial crisis spread.
The bailout fund announcement came as trading on the stock exchange was suspended due to a court order won by investors.
The shutdown followed protests by investors seeking emergency measures to protect their holdings after the bourse fell by 31 per cent this year.