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The economic situation in the arab monarchies of the persian gulf in a period of low oil prices

Abstract. This article examines the impact of the decline in oil prices on the economic situation in the Arab states of the Persian Gulf. The economies of most of these countries are characterized by high dependence on the oil sector and oil prices. The strong decline in these prices has become for these states a major destabilizing factor, with a negative impact on most of the key macroeconomic parameters. The article examines the change in the dynamics of these parameters after the fall in oil prices, particularly in the largest economies of the region; estimates the damage incurred by certain sectors of the economy; examines the measures taken to neutralize the negative impact; and assesses the prospects for further development of the situation.

Introduction

The decline in oil prices, which lasted from the second half of 2014 to the beginning of 2016, caused serious consequences for many countries that extract and export hydrocarbon raw materials. There have been strong shocks experienced by many economies in all macroregions of the world as a result of the declines in exports, industrial production, government budget revenues and other consequences of the threefold decline in oil prices. The degree of the destabilizing impact of these shocks was due to the level of dependence of certain national economic systems on the oil sector; and the possibilities for reducing the impact of the crisis were determined by the scale of the financial and other resources available nationally for implementing anticrisis measures.

The economies of the Arab monarchies of the Persian Gulf (Bahrain, Qatar, Kuwait, the United Arab Emirates, Oman and Saudi Arabia) are among the countries heavily dependent on the oil and gas sector (with certain reservations regarding Bahrain) while at the same time playing a very prominent role in the global energy market. Both this role and the specifics of the economic models of these states explain the interest in their internal processes when theinfluence of low oil prices on macroeconomic stability is being assessed.

In addition, the similarities with the CIS countries and, in particular, the Eurasian Economic Union, are also of particular interest when studying the above economies. The CIS countries and the Eurasian Economic Union are also dependent on commodity exports and have a common integration project. The Arab monarchies under consideration are members of the Cooperation Council of the Arab States of the Gulf (GCC), established in 1981 with objectives that also include "coordination, integration and interaction in all areas".1

Results of research and conclusions

The countries of the GCC represent the largest oil-producing region in the world, producing a total of about 21 million barrels of oil per day.This volume corresponds to 26% of world oil and gas condensate production, which in the first half of 2016 amounted to 79.5 million barrels per day. Bahrain does not play a significant role in the world oil market, being around sixtieth place internationally by volume of production.

The International Monetary Fund (IMF) estimates the 2015 total GDP of the countries in the region as 1.7 trillion dollars, which corresponds to 2.3% of world GDP. GDP breaks down geographically as follows:

  1. About GCC// Secretariat General of the Gulf Cooperation Council// The Cooperation Council for the Arab States of the Gulf website. URL: http://www.gcc-sg.org/en-us/AboutGCC/Pages/StartingPointsAndGoals.aspx (date of access: October 11, 2016).
  2. Table 11.1b World Crude Oil Production: Persian Gulf Nations, Non-OPEC, and World// U.S. Energy Information Administration / Monthly Energy Review September 2016. U.S. Energy Information Administration website. URL: http://www.eia.gov/totalenergy/ data/monthly/pdf/sec11_5.pdf (date of access: October 5, 2016).
  3. Calculated based on the data of IMF: World Economic Outlook Database, April 2016. IMF website. URL: http://www.imf.org/ external/ns/cs.aspx?id=28

The size of the GDP of the countries of the region and their positions in terms of this indicator are primarily due to the volume of oil produced. Saudi Arabia has the largest GDP and that corresponds to the country's leading position in terms of oil production. This also accounts for the UAE being in second place; while the very small size of Bahrain’s GDP is correlated with the insignificant scale of the oil industry in that state (table 1).

Table 1. Volume of oil production per country of the region in 2014 in thousands of barrels per day4

Country

Volume of oil production

Saudi Arabia

11,623.7

United Arab Emirates

3,473.7

Kuwait

2,767.2

Qatar

2,054.6

Oman

951.8

Bahrain

63.9

The share of the oil sector in the GDP of the states under consideration is shown in the diagram in figure 2 and gives an idea of the extent to which macroeconomic stability depends on the industry and the prices of its products. For comparison, we can present similar indicators for Russia, where the share of oil and gas production within the GDP for 2015 amounted to 7.7%5, or Kazakhstan (9.8%6) - countries that experienced very strong macroeconomic shocks from falling oil prices.

  1. International Energy Statistics// U.S. Energy Information Administration website. URL: http://www.eia.gov/cfapps/ipdbproject/IEDIndex3. cfm?tid=5&pid=53&aid=1 (date of access: September 30, 2016).
  2. В соответствии с данными Росстата: Валовая добавленная стоимость по видам экономической деятельности// Национальные счета. Федеральная служба государственной статистики. Вебсайт. URL: http://www.gks.ru/wps/wcm/connect/rosstat_main/rosstat/ru/statistics/accounts/# (дата обращения: 11.10.2016).
  3. Валовой внутренний продукт методом производства за 2015 год// Экспресс-информация № Э-37-02/277 от 29 июля 2016 года. Министерство национальной экономики Республики Казахстан. Комитет по статистике. Официальный интернет-ресурс. URL: http://www.stat.gov.kz/faces/wcnav_ externalId/homeNationalAccountIntegrated?_afrLoop=5352197128593893#%40%3F_afrLoop%3D5352197128593893%26_adf.ctrl-state%3D1b2vbgf5h3_68 7 Economic Indicators. Central Bank of Bahrain// September 2015 - No. 49. P.5. Central Bank of Bahrain website. URL: http://www.cbb.gov.bh/assets/E%20I/ EI%20Sep2015.pdf ; National Accounts Estimates, 2001-2015. Published Date: 31/07/2016. UAE Federal Competiveness And Statistics Authority. Federal Competiveness And Statistics Authority website. URL: http://www.fcsa.gov.ae/EnglishHome/ReportDetailsEnglish/tabid/121/Default.aspx?ItemId=2506&PTI D=104&MenuId=1 (date of access: 5.10.2016); Revised Estimates of Gross Domestic product by Economic Activity and Components of Expenditure for Qatar Economy 2011-2015. August 2016. Ministry of Development Planning and Statistics website. URL: http://www.mdps.gov.qa/en/statistics1/pages/topicslisting. aspx?parent=Economic&child=NationalAccounts (date of access: 5.10.2016); REVISED & PROVISIONAL ESTIMATES NATIONAL ACCOUNTS DURING THE YEARS 2013-2015. Kuwait Central Statistical Bureau website/ URL: http://www.csb.gov.kw/Socan_Statistic_EN.aspx?ID=55 (date of access: 5.10.2016); National Accounts. 16th Issue. August 2016. Sultanate of Oman National Centre for Statistics and Information website. URL: https://www.ncsi.gov.om/Elibrary/ LibraryContentDoc/ben_NATIONAL%20ACCOUNTS%20E%202016_5f0c9801-01c7-4ca9-bbec-180eb78ddaeb.pdf ; National accounts indicators of 2015. Kingdom of Saudi Arabia General Authority for Statistics website. URL: http://www.cdsi.gov.sa/en/1807 (date of access: October 5, 2016).

The dependence of the Persian Gulf countries on oil prices and the problems that grew in their economies as those prices fell have stimulated the emergence of numerous publications containing alarmist predictions of the future prospects for the GCC countries. Particular attention was paid to the largest economy, Saudi Arabia, where the situation is complicated by internal problems and involvement in military operations. Thus, T. Grennes and A. Strazds draw parallels with the current situation in the 1980s, when the fall in oil prices led to a significant reduction in the country's GDP, and predict that "major changes in Saudi Arabia will be unavoidable" if prices remain at around 50 dollars in the long run8. A. Al Omran and N. Lohade note that as the duration of the period of low oil prices increases, there is a decrease in consumption expenditure, a rise in the cost of living, and a reduction in government spending9.

Under the pressure of the new economic reality, the officials of the kingdom declared their intention to reduce the country's dependence on oil, diversify the economy, and send trillions of dollars to special funds to finance the corresponding structural changes. However past experience of the development of Saudi Arabia in this direction has been that such development has not been very successful. For example, M. Galucci points out that in 1970-2013, nine five-year development plans failed for similar reasons;10 and notes that the government does not have a clear strategy, continuing to provide financial support for oil-production facilities that are traditional for the economy. The consensus for the estimates for the Saudi economy in the information field are that it has very serious problems and is in need of radical transformation aimed at the abandonment of the oil-growth model. The situation in Saudi Arabia may also extend to other countries in the region that have similar economic models and regulatory methods and suffer from the same associated problems.

The fact that the economic development of the leading countries of the region is based on oil certainly caused the emergence of serious problems in the course of the current crisis in the world commodity markets. According to the IMF, at the level of the most aggregated macroeconomic indicator - GDP - these problems were not reflected in practice in 2015, as the growth in most countries (with the exception of Kuwait) remained quite pronounced (table 2).

Table 2. GDP growth in the countries of the region 2010-2016 (2015-16 - estimate)11

 

2010

2011

2012

2013

2014

2015

2016

Bahrain

4.3

2.1

3.6

5.4

4.5

3.2

2.2

Kuwait

-2.4

10.6

7.7

1.0

0.0

0.9

2.4

Oman

4.8

4.1

5.8

4.7

2.9

4.1

1.8

Qatar

19.6

13.4

4.9

4.6

4.0

3.3

3.4

Saudi Arabia

4.8

10.0

5.4

2.7

3.6

3.4

1.2

UAE

1.6

4.9

7.2

4.3

4.6

3.9

2.4

8 Grennes T., Strazds A. The Saudi Arabia Oil Shock: Crisis and Opportunity for Economic Reform. Ecomonitor, June 15, 2016. URL: http://www.economonitor.com/blog/2016/06/the-saudi-arabia-oil-shock-crisis-and-opportunity-for-economic-reform/ (date of access: October 11, 2016).

9 Omran A. Al., и Lohade N. Kingdom Comedown: Falling Oil Prices Shock Saudi Middle Class. The Wall Street Journal, Sept. 23, 2016. URL: http://www.wsj.com/articles/kingdom-comedown-falling-oil-prices-shock-saudi-middle-class-1474623003 (date of access: October 11, 2016).

10 Galucci M. Oil Crisis: Can Saudi Arabia Break Its Addiction And Save The Economy From Plunging Crude Prices?

International Business Times, 13.01.2016. URL: http://www.ibtimes.com/oil-crisis-can-saudi-arabia-break-its-addiction-save-economy- plunging-crude-prices-2262134 (date of access: October 11, 2016).

However, even the favorable growth rates of 3-4% in most oil-producing regions in 2015 were all below the level of 2010-12, when there was an intensive post-crisis growth in oil prices. That is, at the end of 2015, when the negative potential of the fall in oil prices in the years 2014-15 was realized, GDP growth in the region was significantly lower than at the beginning of the decade. In addition, there was a further slowdown in growth rates in 2016 – the values forecast by the IMF given in the table are in most cases significantly lower than in 2015, including for the largest economy of the region - Saudi Arabia.

If the GDP index and its growth is taken as an indicator of the current economic situation in the countries of the region, there is a statistical problem with its accurate calculation which should also be taken into account. The indexes of economic growth from the IMF recorded over the past few years and shown in table 2, including the very challenging year 2015, do not correspond very well to the dynamics of absolute GDP values, which, again according to the IMF, declined in all five oil-producing states in 2015, and in quite a significant manner (Fig. 3). Further decline is also expected by the end of 2016.

In most of the oil-producing economies, the size of the GDP in 2015 has decreased to 2011 levels or lower. This significantly differs from the growth data given in Table 2, according to which cumulative growth over the past five years has been about 20-30% for

individual countries. At the same time, it is impossible to explain this discrepancy in the statistics by the change in the exchange rate of the national currency, when GDP growth is considered alongside the growth in the US dollar. The change in the sizes of the various

12 Calculated based on the data of IMF: World Economic Outlook Database, April 2016. IMF website. URL: http://www.imf.org/ external/ns/cs.aspx?id=28 (date of access: September 25, 2016).

GDPs in dollars is shown in Figure 3. The oilproducing economies of the Arab monarchies traditionally keep their currency rates at a fixed level relative to the US dollar, so that the exchange-rate factor cannot be the cause of such strong differences between growth rates and the absolute size of GDP. One way or another, we can state that the size of the GDP of all six of the oil-producing countries of the region in dollar terms has significantly declined in 2015 and will continue to decline in 2016. This also leads to a decrease in the region's share in the global economy and the impact of these countries on world economic processes.

The decline in the size of the GDP of the Arab monarchies of the Persian Gulf is understandable: a twofold drop in oil prices in 2013-15 caused a virtually similar reduction in their exports (Table 3).

Table 3. Change in export volumes by countries of the region in millions of US dollars13

 

2010

2011

2012

2013

2014

2015

Bahrain

13,647.1

19,650.3

19,768.1

20,926.6

20,753.5

20,580.94

Kuwait

67,130.1

102,855

119,643

115,745

104,795

55,720.8

Oman

36,600.8

47,092.3

52,137.8

56,429.1

53,219.8

39,243.56

Qatar

74,799.73

114,444

132,954

133,336

126,702

77,294.2

Saudi Arabia

251,143

364,735

388,370

375,901

342,457

202,269

UAE

213,539

302,037

359,727.7

371,027.9

367,597

333,369.6

The peak year for exports for most of the GCC countries was 2013 (the exceptions are Kuwait and Saudi Arabia, where the indications for 2012 were slightly higher); after which there was first a significant reduction in 2014, and then a sharp reduction in this indicator. In Saudi Arabia, exports decreased by 46% in 2015 compared to 2013; in Kuwait by 52%; in Qatar by 42%; and in Oman by 31%. A less significant decline (10%) in exports was in the UAE, where there is a relatively diversified economy; and in Bahrain, which is least dependent on oil and where the corresponding indexes remained virtually unchanged in the period of falling commodity markets.

The decline in exports in line with the oil prices caused not only a decrease in the nominal size of GDP but also the deterioration of other macroeconomic indicators. For example, in the period of low oil prices, the gross savings of the countries under discussion went down significantly (Table 4), illustrating the sharply decreasing internal potential for investment and the tendency to consume resources coming into the economy.

Table 4. Gross national savings of the countries of the region, % of GDP 14

 

2010

2011

2012

2013

2014

2015

2016

Bahrain

30.3

31.8

36.5

34.1

31.5

12.9

11.1

Kuwait

50.8

57.1

58.7

56.6

46.9

31.4

26.9

Oman

35.1

32.3

35.6

34.6

34.4

16.9

4.8

Qatar

50.4

59.3

60.7

60.2

58.3

54.5

52.7

Saudi Arabia

43.4

50.5

48.8

44.4

38.3

21.2

17.4

UAE

28.6

37.1

44.5

41.6

38.3

27.8

24.8

13 Source: Goods and Services (BPM6): Exports and imports of goods and services, annual, 2005-2015// UNCTADStat. United Nations Conference on Trade and Development website. URL: http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx (date of access: September 30, 2016).

14 Source: World Economic Outlook Database, April 2016. IMF website. URL: http://www.imf.org/external/ns/cs.aspx?id=28 (date of access: September 25, 2016).

In addition, the deterioration of the macroeconomic indicators relating to the state of the external sector of the economies of the region has become very significant. Thus, in 2015, most of the oil-producing countries had a current-account balance in the negative zone; and based on the results for 2016, according to IMF estimates, this indicator will become negative for all countries without exception with an aggregate negative of 93.5 billion dollars, despite the fact that in 2013 the total positive balance of the current account of seven economies was 340 billion dollars.[1] [2] Thus, in current accounts alone, the states under consideration lost about 430 billion dollars over three years due to the crisis in the oil market.

Losses due to foreign economic activities - reflected in the current account and generally in the balance of payments - are manifested not only in relatively abstract indicators of changes in the flow of goods, services and capital, but also in very "down-to-earth" indications that have a quick and direct impact on specific aspects of the economy. In particular, the reduction in export volumes, while maintaining the strict pegging of the region's currencies to the US dollar, quickly depleted the reserves of the oil-exporting countries (Table 5).

Table 5. Gold and foreign currency reserves of the countries of the region in 2010-2015 16

 

2010

2011

2012

2013

2014

2015

Bahrain

5.30

4.77

5.45

5.53

6.23

 

Kuwait

24.80

29.68

33.11

32.41

35.18

30.96

Oman

13.03

14.37

14.40

15.95

16.32

17.54

Qatar

31.18

16.81

33.19

42.08

43.22

36.92

Saudi Arabia

459.31

556.57

673.74

737.80

744.44

626.99

UAE

32.79

37.27

47.04

68.20

78.42

93.93

In absolute terms, during the period of low oil prices, the currency reserves of Saudi Arabia decreased the most - by the end of 2015 their volume decreased by 111 billion dollars compared to 2013. In relative terms, Saudi Arabia also became the leader in the loss of reserves among the countries under consideration - a decrease amounting to 15%. Almost with the same intensity, reserves were exhausted in Qatar - the third-biggest economy in the region - where the percentage decrease was 12.3%. The process of the reduction of reserves in the GCC countries continued in the first half of 2016, responding to the continued decline in oil prices. By July, the reserves of Saudi Arabia had declined to 555 billion dollars[3], having receded to the level of 2011. The dynamics of the reduction of reserves persists within the unfavorable trend over a lengthy period (Figure 4). This is currently one of the key problems of the oil economies of the region (primarily for Saudi Arabia), which can become a trigger for the most powerful general economic crisis of a systemic nature.

The key problem in this case is that, while very significant volumes of income have disappeared, the Arab monarchies continue to keep their currency rates at the pre-crisis level, and at the same level preserve costs, sometimes even increasing them. This combination of factors inevitably leads to a rapid exhaustion of currency reserves, which forces the countries of the region to resort to the previously almost- forgotten tool of external borrowing. Thus, in April of this year, for the first time in fifteen years, Saudi Arabia applied to a syndicate of foreign banks for a five-year loan of 10 billion dollars19. A year earlier, in March 2015, the state-owned oil company Saudi Arabian Oil Co. (Aramco)

signed an agreement to obtain revolving loans from a group of international banks for the total amount of 10 billion dollars20. In May, Qatar put in place loan financing for a record 9 billion dollars; and, in April, the UAE emirate of Abu Dhabi issued bonds worth 5 billion dollars. Kuwait also plans large borrowing21.

However borrowing, even on this scale, cannot solve the problem of the deepening gap between income and expenses in economies critically dependent on oil revenues (approximately three quarters of Saudi Arabia's state-budget revenues come from oil production). The plans of the countries of the region and the forecasts of financial analysts

  1. Calculated based on the data from the following sources: Monthly Monetary Bulletin. July 2016. Qatar Central Bank, August 2016. Qatar Central Bank website. URL: http://www.qcb.gov.qa/English/Publications/Statistics/Pages/MonthlyBulletin.aspx (date of access: September 27, 2016); Monthly Statistical Bulletin. July 2016. Saudi Arabia Monetary Agency, August 2016. SAMA website. URL: http://www.sama.gov.sa/en-US/Indices/Pages/Financial.aspx (date of access: September 27, 2016).
  2. Романова К., Топалов А. С широко распростертыми карманами. Саудовская Аравия займет $10 млрд из-за сокращения нефтяных доходов и резервов. Газета.ru, 20.04.2016. URL: https://www.gazeta.ru/business/2016/04/20/8187551.shtml (date of access: October 3, 2016).
  3. Saudi Aramco привлекла кредиты у международных банков на $10 млрд. РИА Новости, 30.03.2015. URL: https://ria.ru/ economy/20150330/1055513681.html (дата обращения: 11.10.2016).
  4. Кувейт выпустит бонды на $16,6 млрд. Вести Экономика, 04.07.2016. URL: http://www.vestifinance.ru/articles/72558 (дата обращения: 4.10.2016).
  5. Kalyukov Y., Makarenko G. Saudi Arabia has put in the budget a deficit of 87 billion dollars due to oil prices. RBK, December 28, 2015, 18:48. URL: http://www.rbc.ru/economics/28/12/2015/568155749a794781a65a616c

suggest further borrowing, including through the issue of bonds. However, in comparison with the size of the budget deficits (which Saudi Arabia has set for 2016 at 87 billion dollars22), such borrowing will not be a complete resolution to the problem of reduced oil revenues. The size of the budget deficits in 2015-16 are of a threatening nature not only in Saudi Arabia but also in other countries of the region, with the exception of Qatar (table 6).

Table 6. Change in the deficit/surplus of the state budget of the countries of the region in 2010-2016, % of GDP

 

2010

2011

2012

2013

2014

2015

2016 (forecast)

Bahrain

-5.8

-1.5

-3.2

-5.3

-5.8

-15.1

-17.9

Kuwait

26.0

33.1

33.3

34.0

26.6

1.2

-13.4

Oman

5.7

9.4

4.7

3.2

-1.6

-20.4

-19.7

Qatar

6.7

7.3

11.0

16.7

18.1

10.3

-2.7

Saudi Arabia

3.6

11.2

12.0

5.8

-3.4

-16.3

-13.5

UAE

2.0

6.3

10.9

10.4

5.0

-4.9

-10.8

The increase in the budget deficit due to decreased income and increased costs led to a rapid increase in public debt in all three leading countries of the Arabian Peninsula, including the more diversified and stable economy of the

United Arab Emirates (Figures 5-7). In just the last two years, the relative size of public debt (in comparison with GDP) in these countries has grown exponentially; and in the case of Saudi Arabia the growth was almost tenfold.

23 Calculated based on the data of IMF: World Economic Outlook Database, April 2016. IMF website. URL: http://www.imf.org/ external/ns/cs.aspx?id=28 (date of access: September 25, 2016).

 

The resolution of budgetary problems is arrived at not only by attracting debt financing, but also by other measures on both the expenditure side and the revenue side of the budget. In the current year, Saudi Arabia still had to start cutting costs. In particular, in September, the King of Saudi Arabia, Salman bin Abdulaziz Al Saud, issued several decrees on the reduction of salaries and payments to civil servants, including ministers and deputies of the Consultative Assembly (Majlis Ash- Shura), by 15-20%. In addition, expenditure on other items - the costs provided to officials for accommodation and car maintenance - were cut.[4] In addition, the kingdom is trying to find additional sources of income - from exotic ones (increase in the cost of entry visas and payment for departure from the country) to privatization - the transition of the largest oil company Saudi Aramco to IPO, the plans for which were announced in early 2016.

The facts provided above and the trends of changes in the key parameters of the system of public finances of the economies of the region are evidence of the risk of transformation of the negative economic situation into an uncontrollable crisis. A sharp increase in budget deficits and public debt, if they continue for at least one year, will almost inevitably lead to the devaluation of the currencies of the leading countries of the Persian Gulf, followed by a collapse of their entire financial system (including collapse of the stock and bond markets, a banking crisis, etc.) and the escalation of the situation in the macroeconomic sphere.

The first manifestations of such a scenario are already taking place, especially in Saudi Arabia which suffers from low oil prices more than other countries of the region. In particular, there have been problems in the banking system, manifesting themselves in a liquidity deficit. To finance the budget deficit, the state issues bonds that bind bank liquidity, and also withdraw funds from bank deposits. As a result of these actions, the rates of the interbank market have grown three-fold - the highest rate since the collapse of the American bank Lehman Brothers during the previous crisis. The banks of the kingdom have repeatedly asked the authorities for help requesting the provision of liquidity. In June 2016, the Saudi monetary regulator Saudi Arabian Monetary Authority (SAMA) allocated 15 billion riyals (about 4 billion dollars). In September, a second injection of liquidity into the banking system, amounting to 5.3 billion dollars, was carried out; and other measures of monetary accommodation were announced.[5] [6]

A negative situation has also developed in the regional stock markets (Table 7). The scale of the fall is directly related to the level of dependence of certain economies on the oil sector.

 

Index

September 2014

October 2016

Decrease, %

Bahrain

Bahrain All Share

1,476

1,144

22.5

Kuwait

Kuwait Main Market

7,622

5,352

29.8

Oman

MSM 30

7,484

5,613

25.0

Qatar

QE General

13,728

10,388

24.3

Saudi Arabia

Tadawul All Share

10,855

5,526

49.1

UAE

ADX General

5,106

4,409

13.7

Table 7. The scale of the fall in the region's stock markets during the period of oil price decline since September 2014, according to data at the beginning of the month28

The stock market in Saudi Arabia has suffered the most, falling by half during the period of falling oil prices. However other regional markets of the oil-exporting countries experienced very significant declines - the indices of Kuwait, Oman and Qatar lost a quarter or more compared to their pre-crisis values; and the UAE market has also fallen significantly. At the same time, the world stock markets either did not show such a significant drop during this period or even grew. For example, the European index Eurostoxx 50 declined by about 5%; the US stock indices grew by 5-7%; and the stock market of Russia - a country that also suffered greatly from falling oil prices and experiencing sanctions pressure - fell by about 12% on the RTS currency index.

Thus, the stock markets of the countries of the Arabian Peninsula very sharply differ for the worse from global dynamics, which indicates much more negative investors’ estimates of the situation in the respective economies. It is also conspicuous that the largest economy of the peninsula - Saudi Arabia – has suffered the most serious losses in the stock market, representing the greatest negative potential for the financial stability of the region.

At the same time, political factors add additional intensity to the problems of the kingdom. Thus, the costs of a military operation in Yemen are estimated by SIPRI experts to be around[7] 5.3 billion dollars.[8] The threat of an economic conflict with the US emerged fully after the US Congress, contrary to the veto of President Barack Obama, passed a law allowing relatives of people killed in the terrorist attacks of September 11, 2001, to file lawsuits against Saudi Arabia. Earlier, the representatives of the country stated that, in the event of such decisions, retaliatory measures would be taken in the form of withdrawal of reserves from US government bonds (about 100 billion dollars[9]) and sale of other assets, which could shake American financial stability and lead to a full-scale economic confrontation of the parties. There are other threats to the financial stability of Saudi Arabia in line with this factor: the attractiveness of the planned issues of debt securities (Eurobonds with an estimated volume of 10 billion dollars) is decreasing; the stock market has undergone fresh pressure to make it fall further; and the pressure on the Saudi currency rate has increased.

Considering the problems which the region's key economy is currently experiencing, it may be noted that there is a kind of culmination of processes that has lasted for several years. The deterioration of a number of macroeconomic indicators has been going on for 4-5 years; but earlier this was gradual and came from high levels, so it had no pronounced manifestations. Thus, since 2011, the standard of gross national savings has been declining; since 2012, the growth rate of GDP; and since 2013 the revenues and surplus of the state budget and the volume of exports have both been declining. The leading indicator of deterioration in the economic situation in Saudi Arabia was the inflow of foreign direct investment (FDI), which has declined sharply since 2009 and by 2015 decreased almost fivefold from the peak level of 2008 (Fig. 8).

While the economy is slowing down and problems are growing, the foreign investment activity of Saudi Arabia, which grew rapidly in the second half of the 2000s, also declined; and in 2015 this growth practically ceased, which can also be seen as a sign of the closing up foreign economic expansion by the country in the form of investments; various types of assistance; and the development of soft power tools. The current state of the economy and the need for stabilization within the country will, in the short term, lead to mobilization of all available resources to resolve national, not international-level, tasks, primarily in terms of maintaining financial and social stability.

Based on the current situation in the oil market and its prospects, it is possible to forecast the persistence of negative trends in the economies of the states in the region. Continued existence of current low price levels (in the range of 45-55 dollars) will mean further pressure on public finance systems, investment activity and economic growth. In tough external conditions, maintaining a strict pegging of the currencies of oil-producing countries to the US dollar will mean increasing problems in certain areas. In particular, the reduction of currency reserves will continue; state budget deficits will remain at a high level; public debt will grow, as financing of deficit budgets will require new borrowings; and an increase in the tax burden will be required.

32 Calculated based on the data of OECD: Most recent FDI statistics for OECD and G20 countries. Updated on 20 July 2016. OECD website. URL: Source: www.oecd.org/investment/statistics (date of access: September 27, 2016).

In the future, rapid growth of the public debt will be reflected in the growth of budget expenditures aimed at servicing the increased debt. The limited resource base of the states of the region will also mean a reduction in their foreign-investment activity and its optimization in favor of pragmatically oriented projects with closing up of "image" expansion.

 

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