Gulf States Not Willing To Cut Production Despite Asset Depletion
According to the National Bank of Abu Dhabi (NBAD)’s 2016 Global Investment Outlook, the region faces “significant asset depletion” as it will have to further adjust to low oil prices, which the report estimates will remain between $25 and $45 for the remainder of the year.
At the end of 2014, the countries of the GCC—which includes Saudi Arabia, Kuwait, Qatar, UAE, Bahrain and Oman—had about $3 trillion in net foreign assets. But by the end of 2015, they had divested some $210 billion in those assets, and the bank is predicting another loss of $180 billion in assets by the end of this year.
The UAE has reduced energy subsidies and put non-critical projects on hold, and is also considering value-added tax (VAT), income and corporate taxes, privatizations and bond sales to add to government coffers.
The UAE is faring better than others, according to NBAD because of its high financial reserves and its move to diversify away from oil and gas to some extent. Oil revenue makes up some 65 percent of the UAE’s government income. And while countries that rely on oil exports alone for revenue will be further hit by the flooding of the market with Iranian oil, the UAE’s diversified economy will benefit to some extent from renewed bilateral trade with Iran.
The UAE’s budget deficit is even expected to improve 4 percent this year. But the bank warns that UAE equities could be oversold, and “cheap in terms of valuation”, and the UAE currency, the dirham, might be overvalued by as much as 25 percent.
…click on the above link to read the rest of the article…
