Lebanon is expected to further feel the impact of the growing budget deficits and austerity measures in oil-rich Arab Gulf states in 2016, bankers and economists warned Tuesday.
“According to the International Monetary Fund, revenues derived from oil in the Arab Gulf states are expected to drop by $340 billion in 2016. This will reduce the GDP growth in these states from 3.25 percent to 2.25 percent,” economist Ghazi Wazni told The Daily Star.
He added that this will surely reflect negatively on the Lebanese economy since many Lebanese expatriates work in these countries.
There are over 500,000 Lebanese working in Saudi Arabia, the United Arab Emirates, Qatar and Kuwait.
Total remittances from these states are estimated at $4.5 billion in 2015, representing more than 60 percent of the total capital inflows to Lebanon.
Saudi Arabia Monday said this year’s budget deficit amounted to $98 billion (367 billion riyals) as lower oil prices cut into the government’s main source of revenue, prompting the kingdom to scale back spending for the coming year and hike up petrol prices.
A royal decree announced that gasolineprices would go up by 50 percent effective Tuesday. Even with that jump, Saudis will pay just 24 cents (0.90 riyals) for a liter of 95 RON octane gasoline, less than a dollar per gallon. The Saudi-based firm Jadwa Investment estimates the government spends around $61 billion on energy subsidies annually, almost $11 billion of that on gasoline alone.
The UAE has already cut subsidies on gasoline prices to weather the negative effects of the sharp decline in oil prices in international markets.
The decision to reduce spending on major infrastructure projects in Saudi Arabia will most likely affect the Lebanese expats in the country. “These factors will definitely impact the Lebanese working in these countries and the remittances will likely drop as a result,” Wazni explained.
He added that Lebanese expatriates who spend summer vacations in Lebanon could be reluctant to come here and spend money.
“It is also possible to see a decline in the purchase of properties in Lebanon from Lebanese expatriates,” Wazni said.
Lebanese expatriates represent a big percentage of apartment buyers in Lebanon and if this trend continues the real estate market could experiences stagnation.
But what Wazni fears most is the impact on GDP growth in 2016.
“If the situation remains the same the GDP could register a negative growth compared to zero or 1 percent growth in 2015,” the economist argued.
Marwan Barakat, the head of economic research at Bank Audi, said remittances to Lebanon would certainly drop in 2016 in light of the budget spending cuts in some of the GCC states.
“We have seen a drop in remittances and all capital inflows in 2015 by 27 percent compared to 2014. Deposit growth in the first 10 months of this year was $4.9 billion compared to $5.8 billion in the same period of 2014,” Barakat said.
He added that the drop in remittances and deposit growth was partly due to the GCC countries impact on the Lebanese economy.
Barakat stressed that deposit growth in the GCC states was relatively weak this year compared to 2014. “For this reason we don’t see a deposit growth in Lebanon due to these factors. Deposit growth will most likely be the same as last year,” he added.
Barakat did not expect the Cabinet to carry out any reforms to weather the impact of the crisis in the region but at the same time did not believe that GDP growth would be negative in 2016.
Joe Sarrouh, the adviser to the chairman of Fransabank, said the budget cuts in the GCC states should induce the government to implement some quick measures such as passing the oil and gas decrees and make a decision on the salary scale.
“We can’t remain idle. This is an opportunity for the state to carry out some reforms and elect a president as soon as possible to relax the market,” Sarrouh said.
By Osama Habib
