São Paulo – Asset quality and financial system liquidity in the Gulf Cooperation Council (GCC) might deteriorate as a result of low oil prices. The information was released by the International Monetary Fund (IMF) in a report this Wednesday (16), which also claims that economy and finance in the region are interwoven with oil price variation.
The GCC is comprised of Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Bahrain and Oman. According to the FMI, the bloc’s economies are highly dependent on oil and gas exports. A rebound in commodity prices would mean higher oil revenues, stronger fiscal and external positions and increased government spending. These, in turn, would fuel corporate profitability, equity prices and banks’ balance sheets.
Despite warning of the effects of cheap oil on the local financial system, the IMF stresses that banks are well-capitalized, liquid, profitable and well positioned to manage systemic risks. But the IMF advises the implementation of countercyclical macroprudential policies to prevent risk buildup. Said measures are, in short, government actions designed to prevent and minimize the effects of fluctuations in economic activity.
The report says hydrocarbon exports from the Gulf accounted for 70% of total goods and services exports between 2011 and 2014. Fiscal dependence on hydrocarbon revenues was even greater, accounting for over 80% of total fiscal revenues. It asserts that in spite of countries’ efforts to diversify their economies, reliance on oil revenues has not decreased.
*Translated by Gabriel Pomerancblum
