Lower crude prices a boon to MENA net importers

Friday 29/01/2016
Construction work in the area of Dbayeh north of the Lebanese capital, Beirut.

Beirut - Net oil-importing coun­tries in the Middle East and North Africa (MENA) seem happy with crude prices hav­ing fallen more than 60% since June 2014. The lower prices lessen government expenditures on fuel subsidies and help ease budget deficits, sovereign debts and debt servicing.

The sovereign ratings of Arab net oil importers — Egypt, Jordan, Lebanon and Morocco — are a far cry behind those of the highly rat­ed Gulf Arab oil states but the four economies are expected to pick up through 2018, economic ratings service Standard and Poor’s (S&P) said. Egypt, Jordan and Lebanon are speculative grade, while Moroc­co is rated investment grade.

Egypt’s budget for the fiscal year 2015-16 was cautious about crude prices. Although prices fell from more than $100 per barrel in June 2014 to less than $30, Cairo calcu­lated its budget based on $73.90 per barrel for 2014-15 and $75 for the current fiscal year.

“The budget deficit fell from 10.8% of the gross domestic prod­uct (GDP) in 2014-15 to 8.9% in 2015-16,” said Marcelle Nasr, an Egyptian business writer. “Lower oil prices helped the government decrease its bill for fuel subsidies from $12.8 billion in 2013-14 to $8.9 billion in 2014-15 and then to $7.8 billion now.”

The Cairo government’s sav­ings did not come only from lower crude prices as it slightly increased prices at fuel outlets, but consum­ers tolerated the increase. The price of 92-octane gasoline rose to 36 US cents per litre, up 40% from its previous price of 24 cents, while 80-octane gasoline rose to 20 cents per litre, up 78%.

Egypt’s external debt dropped during the third quarter of 2015 to $39.9 billion, Nasr said, down from $45.3 billion in the same period in 2014. “A main factor in the reduc­tion was an 18% fall in debts to Paris Club countries, which reached $3.03 billion,” she said.

In Morocco, the budget deficit de­creased from 4.9% of GDP to 4.3% in 2015 and is expected to fall to 3.5% in 2016, Mohammad al-Sharqi, a Moroccan business analyst, said. “The public debt stabilised at 64% of GDP in 2013 and 2014, dropping to 63% in 2015 and due to reach 60% by 2020.”

From 2008-12, the figure reached an annual average of 50%. “But the prices of oil and commodities must stabilise for a few years at their cur­rent lows, plus or minus, for Rabat to have its debt servicing under control,” Sharqi explained. “Debt servicing is expected to reach $7 billion in 2016.”

Lebanese consumers were not very lucky. In the absence of sub­sidies, fuel prices are calculated ac­cording to a complicated formula that makes sure enough revenues are channelled into the Treasury.

“When world crude prices fall, fuel prices in Lebanon do not fall with the same percentage,” a Fi­nance Ministry source told The Arab Weekly. “Consumers benefit from part of the decrease only; the other part, which they still pay, goes to the Treasury.”

Lebanon’s debt is about 163% of GDP, not far from 175.1% in Greece, the eurozone country suffering the most severe fiscal difficulties. “Leb­anon is much better off with lower oil prices but, in any event, we are not in a situation as bad as Greece. We are servicing our debts on time, while the Greeks failed to do so in 2010 and had to be bailed out by the European Union and the Inter­national Monetary Fund (IMF),” the source said.

Jordan’s gain from lower oil pric­es in 2015 would be only 2 percent­age points of GDP, the IMF said. IMF Director of the Middle East and Central Asia Department Masood Ahmed said oil prices’ effects on the Jordanian budget would be neutral.

“There are some savings to the government from transportation and cash transfers to the popula­tion, which are only made when oil prices are more than $100 per barrel. On the other side, they (the government) lose from some of the revenues that they get by taxing en­ergy products,” Ahmed said.

The average inflation rate in Arab oil-importing countries is expect­ed to be 10.7% in 2015 as a whole, compared to 12.7% in 2014, a report by the Arab Monetary Fund (AMF) says, but the figure may jump to 11.4% if oil prices pick up again.

Stubborn oversupply has been haunting the oil industry since June 2015 when the Organisation of the Oil Exporting Countries (OPEC) adopted a “no-cut” policy to de­fend its market share. The expect­ed return of Iranian oil into world markets in coming weeks is fuel­ling fears that the global glut will be even more bloated.