Indian expatriate workers hit by a combination of coronavirus (COVID-19) infections and a steep drop in oil prices, who are planning to leave in droves from the Gulf countries, may have to prolong their stay at home on return, as economic recovery in the energy-rich region could take at least a year.
A Regional Economic Outlook Update for the Middle East and Central Asia released by the International Monetary Fund (IMF) last month points out that because of lower global demand and lower oil prices, oil exporting countries will lose around $250 billion in revenues across the region.
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“Looking at Middle East [West Asia], North Africa, Afghanistan and Pakistan (MENAP), we project the region to contract by 3.1% this year. This comes after an expansion of 0.7% last year. Facing a double whammy, oil exporters in MENAP contract by even more, 4.2%,” said Jihad Azour of the IMF at a virtual press conference last month.
Analysts point out that the serious disruption in the revenue stream would stall mega projects in the Gulf, reducing the demand for expat labour from South Asia.
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Plummeting oil prices below $30 have upset the budgets of oil producing countries, hollowing out their appetite for big construction and infrastructure projects. According to the ratings firm Fitch Ratings, Saudi Arabia would require a price of $91 per barrel to balance its budget. Oman would need to sell at $ 82, Abu Dhabi at $65, Bahrain at $96, Qatar at $55 to go ahead with their budgeted plans.
In Saudi Arabia, the price meltdown is expected to badly hit the ambitious Vision 2030 project, to transform the Kingdom by implanting a robust non-oil economy, through massive investments in areas such as health, infrastructure and tourism — all requiring large pools of blue and white collar workers.
Till the time that oil prices rebound, the Gulf’s oil exporters may have to rely on their sovereign wealth funds to make up for their financial shortfalls for some time. For instance, Saudi Arabia has around $500 billion in its sovereign wealth fund, which it could use to meet its financial commitments for a limited period.
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But the IMF’s update points to a modest economic recovery in the six-nation Gulf Cooperation Council (GCC) next year. Growth is expected to plummet by 2.7% in 2020 but is expected to rise by 3.3 in 2021. That could revive some of the stalled labour-absorbing projects, but the scale could be modest because of high indebtedness of the Gulf economies, diverting funds. “Large forthcoming maturing debt presents financing risks in current market conditions. High public debt levels may limit fiscal space available to undertake additional measures,” the IMF observes.
