IMF warns Bahrain will suffer cost of its policies

“Together with substantial oil revenue risks, this prospect underscores the need for countries to build or strengthen their fiscal and external buffers,” the IMF said in a report.

In 2012, total state spending in the six Gulf Cooperation Council members – Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain – climbed 9.7 per cent, a Reuters calculation based on IMF data shows.

That is much less than the 17.7% jump in 2011, when governments boosted social welfare and infrastructure spending to ease social tensions during the Arab Spring uprisings.

The IMF expects growth in the GCC’s state spending to slow further in coming years; it forecasts an average rise of just over 4% annually in 2013-2018, compared to the 15% clip seen over the last decade, its data shows.

But on current indications, this spending restraint will not be enough to prevent state budgets in many countries from going into the red, the IMF predicted.

Bahrain is currently the only GCC country in the red; it is expected to be followed by Oman as soon as in 2015, and Saudi Arabia in 2018.

The combined budget surplus of 11 Arab oil exporters, including those in North Africa, is now projected to decline to 4.2% of gross domestic product in 2013 from 6.3% last year.

In April this year, the IMF projected a 4.7% surplus for 2013.

Even as spending grows too fast, revenues are threatened by the risks of lower oil prices and a drop in global demand for Arab oil, the IMF added.

Oil export receipts account for over 80% of government revenues in the region and the IMF said the most important threat to revenues was now the possibility of excess supply in the global oil market.

Most Arab oil exporters now need an oil price above $90 to balance their budgets at forecast production levels, the IMF said, adding that rising volatility in oil production meant uncertainty over revenues would increase.