Coronavirus: Gulf economies face new crisis

Text by: Nicolas Keraudren

The six Arab Gulf States are also hit hard by the coronavirus pandemic. About 4,500 Covid-19 positive cases have been reported by health authorities. Over 30 deaths have also been recorded. In this context, containment measures were decided in each of the monarchies. These lead to an overall slowdown in economic activity, felt differently depending on the State.

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The countries of the Gulf Cooperation Council (GCC) are trying to coordinate their action. Numerous financial measures have been adopted at the national level to mitigate the economic repercussions of a global health crisis. But not all states are on an equal footing.

Oman and Bahrain facing the crisis

The fragile economy of the Sultanate of Oman, for example, is far less armed than that of its neighbors. From the outset, the Sultanate has certainly taken strict measures to stop the spread of the virus . A winning strategy since less than 300 Covid-19 positive cases have been recorded in the country. But these measures lead to an inevitable slowdown in economic activity while the country has faced a critical financial situation since 2014. It is therefore the first major challenge for the new sultan Haitham ben Tarek al-Said who succeeded his cousin on January 11, 2020. Because according to Scott Livermore, chief economist in charge of the Middle East within the research firm Oxford Economics, the sultanate “ must save where possible. Significant debt repayments are expected over the next two years . ”

Bahrain is also likely to fare better than its neighbors. Manama has nevertheless adopted a variety of measures to support its economy. " Measures similar to those adopted in Europe and which give companies a good chance of survival in the face of the crisis, " says Scott Livermore. These companies " will thus be able to contribute to the economic recovery of the country ", continues the economist.

An opinion shared by Cinzia Bianco, associate researcher at the European Council on Foreign Relations . According to her, " the country can probably count on external donors such as Saudi Arabia or the United Arab Emirates " to help it.

Strengthen financial measures to support the economy

Saudi Arabia, the United Arab Emirates and also Kuwait are indeed in a more favorable situation. A note from the research firm Oxford Economics published on March 31, moreover, considers that these countries " are financially solid and can thus afford greater budgetary support ". Tax measures to counter this crisis are, however, "limited" in these countries. In the best case, they only amount to 1.4% of GDP, compared to 26.6% in Bahrain.

Economist Scott Livermore therefore warns: “ The authorities acted decisively and early, but the consequences of the coronavirus have evolved rapidly. Without greater and broader political support, the risk is that many businesses, particularly SMEs, will cease to operate. This could have longer-term consequences and affect the ability of the GCC to recover from the economic impact of the coronavirus . ”

For its part, Qatar " is relatively less vulnerable, " said the economist. Indeed, the latter benefits from a budget surplus obtained last year, and also has significant available reserves to finance future deficits. But Scott Livermore also nuances there: Qatar is " far from immune ".

The shadow of the oil price war

On March 6, Moscow refused to lower its oil production . A refusal to which Riyadh responded by announcing considerably increase its own. As a direct result, the price of a barrel has dropped significantly. It is " the worst possible time to have oil prices at their lowest in 17 years, " said Cinzia Bianco. For Scott Livermore, " if oil prices remain at current levels indefinitely, [the Gulf countries] will have to make budgetary adjustments ".

Another economic crisis is therefore hovering over the petro-monarchies of the Gulf.

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