Emirates NBD bank reports hike in UAE budget basis oil price.

The minimum oil price required to balance the national budget in the United Arab Emirates (UAE) has increased to US$ 107 per barrel, which in turn becomes the

highest among the Gulf Cooperation Council (GCC) states. The revised breakeven price comes as a result of a sharp rise in expenditure, according to data

consolidated in a report produced by Dubai-based bank Emirates NBD.

Gulf economies have been reaping the rewards of buoyant prevailing oil prices, which have remained above US$ 100 per barrel (bbl) for 6 out of the last

7 months. Traditionally, the GCC states have utilised a much lower bbl rate as the basis for their annual budgets, which hopefully accommodates the pricing

troughs, and takes dramatic advantage of the peaks. During the past decade a number of surpluses have been posted, despite a fickle global economy of late. Yet

the Emirates NBD GCC Quarterly update warns that while member states will make short term gains, they remain susceptible to negative volatility

swings.

AoHigher spending in the advance of a diversification of budget revenues increases the GCC budgetsAAE vulnerability to a negative price shock,Ao was a statement among

the investor notes contained in the quarterly review.

However, bank analysts also felt that conditions were still conducive to accelerating internal investment. AoFor the GCC oil producers, the additional export revenues

should provide further comfort to push ahead with planned expenditure, particularly for the UAE, which has a relatively high break-even oil price and has been more

conservative with spending growth in recent years,Ao the report said.

Oil prices will average US$ 114 per bbl throughout 2012, according to the Washington based Institute of International Finance, leading to a surplus in the GCCAAEs

external current account, likely to hit a new record of US$ 358 billion in 2012 and a healthy increase on an estimated figure of US$ 327 billion in 2011. The GCC is

made up of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.

GCC governments have embarked on vast public spending programme in the aftermath of the Arab Spring of socio-political unrest, in order to pacify their populations in

search of better daily living conditions and more political involvement. Measures have included significant pay rises in the public sector where a large percentage of GCC

nationals are employed, job creation and benefits schemes for the unemployed, social housing development on a large scale along with expanded housing loan support

along with additional education, healthcare and public transport facilities.

Even so, AoThe UAEAAEs breakeven oil price has risen sharply over the last five years, as expenditure has grown from around 18 per cent of GDP in 2007 to an estimated

30 per cent of GDP in 2012,Ao Emirates NBD researchers say and the budget break even oil price dwarfing other members of the GCC. The closest, Bahrain stands at

US$ 100, with Oman at US$ 90, Saudi Arabia on US$ 80 per bbl with Kuwait down at US$ 55.

Copyright Andy McTiernan. All rights reserved.

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