MANAMA: The impact of the continued decline in oil price has started affecting state budgets, including current account deficits, according to KAMCO GCC Economic Quarterly Report issued on Sunday.
Quoting data from Saudi Arabia central bank, the report added that the Kingdom has begun drawing down its forex reserves for the first time since the financial crisis to cover expected state budget deficit caused by the plunge in oil prices.
The central bank’s net foreign assets declined by 1.4% y-o-y to SR 2.65 trillion ($707billion) at the end of February-15, also due to the strengthening USD that affected the value of non-USD assets. According to the data, the value of foreign securities declined by $2billion to $540 billion as compared to January-15th 2015.
Meanwhile, the IMF, which supports a cut in subsidies across the GCC, reported that Qatar has the least energy subsidies in the GCC, estimated at 3.5% of GDP, whereas Bahrain was at the other extreme end with the largest energy subsidy of 12.5% of GDP, followed by Saudi Arabia (9.9%), Kuwait (7%), Oman (6.2%) and the UAE (5.7%).
On the banking side, quarterly growth in credit facilities extended by Kuwaiti banks slowed down to 0.42% during Q4-14 to reach KWD 30.80 Bn in December-2014. Personal facilities remained the only driver of growth with an increase of 2.1% that offset a decline in credit facilities extended to other sectors.
Meanwhile, in Saudi Arabia, money supply (M2) increased by 2.7% during Q4-14 to reach SR 1.542 trillion after growing by 3.4% and 2.9% in Q3-14 and Q2-14, respectively, driven by ample liquidity with banks and remarkable growth in deposits base and credit facilities. Whereas, quarterly inflation rose by 0.56% in Q4 2014 as compared to Q3 2014 and by 2.5% during 2014.
GDP growth rate is expected to remain below historical levels, especially after the significant unexpected drop in oil prices during the latter half of 2014. The decline in oil price continued during 2015 and prices are expected to remain significantly below early 2014levels in the near term, affecting economic growth rate in an oil dependent economy such as Kuwait.
Total government revenues declined significantly by 11.6% to KWD 21.2 Bn during 9M FY14/15 as compared to KWD 24.0 Bn during 9M FY13/14. The drop was primarily due to the fall in oil revenues that declined by 12.6% to KWD 19.4 Bn whereas non-oil revenues inched up by 0.5% to KWD 1.8 Bn. On the other hand, expenditure increased by 9.7% to KWD 10.6 Bn on the back of a 30.9% increase in capital expenditure to KWD 899 Mn followed by an 8% increase in other expenditure to KWD 9.7 Bn. The decline in revenues and higher expenditure resulted in significantly lower surplus that declined by 25.9% to KWD 10.6 Bn during 9M FY14/15 as compared to KWD 14.3 Bn during 9M FY13/14.
Credit facilities extended by Kuwaiti banks by the end of Q4-14 increased at one of the slowest quarterly growth rate of 0.42% to KWD 30.8 Bn. Personal facilities remained the only driver of growth with an increase of 2.1% that offset a decline in credit facilities extended to other sectors. Credit to real estate sector saw the steepest quarterly decline of 6.1% followed by 4.4% decline in credit facilities to the construction sector where as credit to industry declined by 1.2%.
Kuwait’s broad measure of money supply (M2) increased by 2.5% to KWD 33.8 Bn in Q4-14 after recording a drop in Q3-14 on the back of higher quasi money and a slight increase in sight deposits. There was no change in GDP estimates for Saudi Arabia which is expected to reach SAR 2,821.7 Bn at the end of 2014 with a growth rate of 1.09% compared to 2013. The Non-oil GDP is estimated to grow by 8.21% to reach SAR 1,600.8 Bn, whereas the non-oil public and private sectors are estimated to grow by 6.06% and 9.1%, respectively. On the other hand, the oil sector is estimated to decline by 7.2% during 2014 to reach the lowest levels during the last 4 years at SAR 1,198.3 Bn.
Meanwhile, SABB HSBC Saudi Arabia PMI reached its six-month high level of 60.1 points during March-15 indicating an accelerating growth in the non-oil sector underpinned by faster growth of output and new business. According to the index aggregator, strong demand conditions prevailed during the month that led to a sharp increase in new orders. The broad measure of money supply (M2) in the Kingdom increased by 2.7% during Q4-14 to reach SAR 1,542 Bn after growing by 3.4% and 2.9% in Q3-14 and Q2-14, respectively, driven by ample liquidity with banks and remarkable growth in deposits base and credit facilities.
During Q4-14, inflation marginally inched up as compared to last quarter. The general consumer price index rose by 0.56% in Q4-14 as compared to Q3-14, and by 2.5% during 2014. Among the sectors, “Food and non -alcoholic beverages” recorded the highest inflation rate during Q4-14, registering a quarterly increase in prices of 1.9%, followed “Furnishing and household items”. In terms of the influence on the cost of living index, the food and beverages group ranked first with 55.3% during Q4-14 as compared to 28.5% in Q4-13; followed by the furnishings and household at 16.9% as compared to 20.3% in Q4-13.