Could Gulf Countries Run Out Of Money Before They Run Out Of Oil?

[Che -Guevara]

Middle East countries could run out of money long before they run out of oil, according to a stark warning issued by the International Monetary Fund (IMF) in a report today.

The Washington-based organisation says global oil demand is likely to peak around 2040, although it could happen much sooner if there is a concerted global effort to address climate change issues and faster improvements in energy efficiency.

That means the clock is ticking for Gulf oil exporters to fundamentally rebalance their economies. However, the IMF says that, without more significant reforms than those already announced, the financial wealth of Saudi Arabia, Kuwait, the UAE and others could be depleted by 2034.

“Oil-exporting countries may need to be ready for a post-oil future sooner rather than later,” says the report, called The Future of Oil and Fiscal Sustainability in the GCC Region.

Gulf Cooperation Council governments– a bloc of six countries comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE which together produce more than a fifth of the global oil supply – have all launched ambitious plans to diversify their economies away from oil and gas. The most high-profile effort is probably Saudi Arabia’s Vision 2030 program, championed by controversial Crown Prince Mohammed bin Salman, but it is a path all six countries are heading down.

However, despite such initiatives, oil and gas remains a central element for the region’s economies and there has been limited progress in developing non-oil, private sector activities. The IMF points out that, even where there has been progress on this front, much of the non-oil economic activity indirectly relies on hydrocarbons, via public or private spending of oil-derived wealth.

The IMF report recognizes the Gulf countries are aware of such issues and have been adjusting their budgets to take account of the challenging environment they find themselves in. “However, the expected speed and size of these consolidations in most countries may not be sufficient to stabilize their wealth. These adjustments need to be accelerated and sus­tained over a long period of time,” the report warns.

The IMF also recommends that, alongside the diversification efforts, Gulf governments need to raise more revenue from taxes and cut government spending. “Governments will likely need to downsize,” it warns.

The report does not venture into political commentary, but there is a clear underlying danger to this latter point. The idea of a smaller state is a delicate one for the region, given the implicit social contract between the autocratic regimes of the Gulf and their citizens, in which ruling families untrammeled power but in return offer a cradle-to-grave welfare system.

Ultimately, though, regional leaders may find they have few choices. The IMF says the region can either reform now or leave the task to future generations. Either way, change will have to come at some point. Otherwise, the money really will run out.

Could Gulf Countries Run Out Of Money Before They Run Out Of Oil?

WWW.FORBES.COM

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“Oil-exporting countries may need to be ready for a post-oil future sooner rather than later,” warns the IMF, in a report issued today

 

[maakhiri1]

The only can country that could survive this, Big land, other sources is KSA, they could also monetize Hajj/Umra

[Tallaabo]

4 hours ago, maakhiri1 said:

The only can country that could survive this, Big land, other sources is KSA, they could also monetize Hajj/Umra

They would be the worst hit due to their larger population and total reliance on hydrocarbons. The UAE and Qatar will be least affected because they have already developed their countries very well and have built up vast investment portfolio across the world. They also have smaller and more educated(especially UAE) citizens. 

[Suldaanka]

Oil makes less than 10% of GDP in UAE. And Qatar majority of its income comes from Liquefied Natural Gas (LnG). 

Gas is not going peak anytime soon. It is one commodity that has been raising in demand and will do into the future. 

But Oil/petroleum will peak, as electric vehicles and hydrogen cells become cheaper and more reliable. Already the UK is phasing out combustion engine cars and light vehicles like Motor Bikes etc by 2035 (or 15 years from now). it is expected that other EU and UK's aligned countries like Australia, NZ and Canada to follow their lead. 

[Dhaqaale]

This does put a smile on my face.

[Mourad1]

As it is always the case with the IMF, everything is done with the aim of pushing a specific agenda. In this case, it is that IMF is trying to convene to Golf countries to buy more investment products from Western nations and re-alignment with their economic policies 
 

The interesting fact is that all of these Golf countries have surpassed the West in terms of living standards economically. Even if the oil industry collapses today, Golf countries have a such highly developed economies that increasing or imposing taxes on their foreign populations, little monetary easing and some borrowing on capital markets will be sufficient to keep all the families in line for at least a decade. 
 

So why does the IMF imply that a stop of oil funds will lead to political instability? 

[Dhaqaale]

3 hours ago, Mourad1 said:

As it is always the case with the IMF, everything is done with the aim of pushing a specific agenda. In this case, it is that IMF is trying to convene to Golf countries to buy more investment products from Western nations and re-alignment with their economic policies 
 

The interesting fact is that all of these Golf countries have surpassed the West in terms of living standards economically. Even if the oil industry collapses today, Golf countries have a such highly developed economies that increasing or imposing taxes on their foreign populations, little monetary easing and some borrowing on capital markets will be sufficient to keep all the families in line for at least a decade. 
 

So why does the IMF imply that a stop of oil funds will lead to political instability? 

What makes you think Gulf countries have surpassed anyone in term of living standards? Do you know infrastructure no matter how well built requires a highly educated and specialised workforce to deal with the law of entropy. Gulf countries have been mismanaged from the get go. The local workforce of these people is still in the pre-industrial age which is why they have to employ foreigners to do the work; from basic to high technical jobs. See the news reports of slave labour imported into Qatar from places like Bangladesh, India and Pakistan. 

Don't assume that because they have managed to build a pre-fabricated city in the middle of a desert that somehow it equals to Tokyo, Seoul or Singapore. The former was built with oil money the latter was build with brains, big difference.

[Dhaqaale]

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You were supposed to be someone with Economics's background, and yet you have no idea of how in certain ways, enough wealth of your own's country, can be of a sufficient ground to which to run a given nation, even if alleged brain power in which the likes of Japan and South Korea has to themselves is missing from your country in the first place?

It depends on the kind of wealth your talking about, if it is natural resources then yes they have a finite life and can run out. Real wealth of the kind that cannot runout is called human capital, this capital is maintained through a robust educational system that serves the respected industries of a given nation thus keeping the know how in-house. Japan and South Korea have highly developed economies based on human capital not natural resources, which is why a nation with a high I.Q can have a higher standard of living than one that solely depends on natural resources which Qatar does. 

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Apparently, It never had occur to you to actually consult the data of how each nation can fair in his sort of circumstances of "brain vs. natural wealth". Particularly by looking at places like Sultanate of Brunei for example. And you still want to detain the gallery of SOL with endless bleating. poor lad, still waffling with his sophomoric arguments. And he thinks he figured all of it.

Insults aside. Take a look at Israel the only Middle Eastern country not to have oil or natural gas at the start of its independence 1947. Now compare the GDP per capital with any Arab country that does not relay on oil and you will see the difference it makes to have as you put it "Brain vs Natural resources" in clear view. Brain makes all the difference in the world there is no getting around this fact. Another famous example is Singapore, oil and natural gas did not built Singapore only a highly development educational system with a clear plan of using that human capital did.

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See to it to find out as to how national wealth investment fund that is known as "Sovereign Wealth Fund", which is what the likes of Norway from its oil and the likes of Singapore (from its nominal yearly growth) have been put aside by those countries, so that they will help these states to "cushion" if there is any adverse affect which could come to the future's direction of the world economy, which is currently based on or dependent now on hydrocarbon, or "Carbon Economy" in short.

Sovereign Wealth funds do not add value to a countries economy they only expose you to risk. Those portfolios are dependent on a regular return every quarter and given out as dividends at the end of the financial year. What happens to those investments in foreign companies if those investment don't do well? Who is going to pay the price for the shortfall? This is why Singapore and South Korea have refused to take on such risks and decided instead to build a robust system of internal investments in the form of knowledge and transform them into Cars, motorcycles, electronic goods, Banking services, legal advice, accounting ects they keep 100% of the wealth without sharing it with outsiders. This cannot be done without a strong human capital foundation. Finland has  competent individuals watching those fund investments but they too are at risk of losing significant money.

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And how, in particular, the likes of Qatar and UAE, and the KSA, have also join in the pursuit and the creation of thes sort of " Sovereign Wealth Fund", so that if there is a drastic change on the World's economy that is currently based on Oil and Gas (and I don't expect that to be the case at least in the remainder of this century, not while China is still in a mid-way point of its full potential of national economical growth prospect) these countries in the Arabian's gulf states will still be in prosperous condition in which the rest of Africa can only look on with green-eye and with a lips-smacking envy (as it were).

You can make money by putting a billion dollars into a savings account at 5% return each year, but that wealth is dependent on the currency being stable and reliable. Or you can invest that billion dollars into an educational system that will produce engineers, scientist, accounts and lawyers and hold onto the human capital with a continuous return for the next 30, 50 or 100 years. Sovereign wealth funds may seem like a good idea as you can simply watch your money grow with no real perceived risk, but in economics, the risk is always there. Human capital is the one thing that can rebuild a destroyed economy after a world war like Japan. Which did have the most educated workforce in all of Asia at the time. Read Thomas Sowells book Basic economics which cover what I have posted here in more detail. Now be gone from my presence bushman...

[Dhaqaale]

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Still not getting are you? the point is nor about how likes of Japan will all ways be street ahead of every one else? Of course they will be, For that is given. But the question is, all other thing being equal, whether a natural based economy of a country (provided it does not mismanaged that badly) can still be make that country, a prosperous, even wealthy in global standard, and do so in so far as the eye can see?

This paragraph does not make sense. Are you trying to say that natural resources can be turned into cash and then invested into a stock market for a rate of return like some casino? Talk about mismanagement! Infrastructure of a country has to be maintained or else it decays this is the law of entropy. But new cities like Dubia have not been around long enough for that to happen yet The Arabs pay for everything with the oil money and don't like working i.e Japan, China USA or Europe.

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Furthermore, whether the combination of sovereign wealth fund that is nimble enough to seek where rate of investment (ROI) is the highest in the purpose of investment for that country on one hand, plus the natural resources of that country on the other hand, can still see through that nation in question into a mid-ranking wealthy nation of the kind that would nor worry about whether they are poor in anyone standard?

Another poorly worded paragraph. Again I think he's making the same argument as before, terrible logic.

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You remind a some of hard-headed kids I used to teach (back in the days when I was a mere jobbing lecturer in some of the UK's universities.

No way this is true. piss off.

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Poor lads. he is still not getting that I saw through him in the first moment he actually opened his mouth about this issue. And everything else from that point has been a down hill for him. Or at least it has been a confirmation for me as to how he has no argument that has any merit at all.

I am done with this troll. Never again shall i waste my time educating a wildling bushman from the north

 

P.S: I noticed he edited his post (above mine) to conceal his poor use of the English language. 

[Duufaan]

IMF has many functions, not only borrowing money, ask reforms, charge interest and control. In the gulf, it wants to help  but it is just too late. Political and economic reforms goes hand in hand. The gulf leaders are not even ready to go the  level of political system  of Morocco. As the rest of world, specially the Muslim world countries prosper economically and develop the Golf countries  will lose it is influence in the Muslim world and most importantly the ability to control it is own people. The other countries are very small except SKA which has serious problems. they will not be able to maintain the welfare system for too long as Saudis family getting even bigger with bigger budget for themselves alone. End of the day nothing IMF can do. The golf had, it is glorious days and will regret the lost opportunity for the trillions of petrol dollars unaccounted in short time. The golf is desert place and oil money made attractive, with out money no one will pay attention.

[Old_Observer]

On 2/9/2020 at 6:49 AM, Suldaanka said:

Oil makes less than 10% of GDP in UAE. And Qatar majority of its income comes from Liquefied Natural Gas (LnG). 

Gas is not going peak anytime soon. It is one commodity that has been raising in demand and will do into the future. 

But Oil/petroleum will peak, as electric vehicles and hydrogen cells become cheaper and more reliable. Already the UK is phasing out combustion engine cars and light vehicles like Motor Bikes etc by 2035 (or 15 years from now). it is expected that other EU and UK's aligned countries like Australia, NZ and Canada to follow their lead. 

Why is it that when America has finally become oil exporter, everybody is against oil?

Imagine when the Russians finish their wells and go to Fracking like America with their vast lands full of oil and gas. Iranians just increased their oil reserve by about 30 percent more.

The British are smart, since they have no available prospect after North sea, they want to move the world to something they excel. Anything electric with power generated from Nuclear which Canada has the most along with Russia in the Nuclear fuel.

Environment is just another tool in the tool box of competition of empires and important countries..