The Sultanate may be the region’s fastest growing economy in 2013, knocking Qatar off the top spot it has held for eight years. At the same time the GCC region is expected to register solid economic growth in the next two years supported by high oil prices, strong government financial balances and a continued wave of public spending on infrastructure projects and social items.

“However, global risks loom large over the region’s economic growth. The risks to the overall growth outlook have nonetheless become more apparent,” says a report by the National Bank of Kuwait. The spending by the regional governments, says the report, surged by 22 per cent last year. Yet the combined GCC budget surplus actually rose to 11 per cent of GDP thanks to a 49 per cent jump in oil revenues.

In the first four months of 2012 itself, Oman’s surplus reached RO 1.45 billion exceeding the budget deficit of RO 1.2 billion. While the aggregate fiscal position is sound, rising spending commitments have increased vulnerabilities to lower oil prices. Budget breakeven oil prices now range from $ 72-115 per barrel, compared to $ 30 per barrel in 2005. A sustained period of lower oil prices would increase the need for fundamental fiscal reform.

Net oil revenue, which accounts for almost 70 per cent of total revenue, for the six-month period up to June 2012 rose 30 per cent to RO 5.277 billion, while gas revenue shot up to RO 837.2 million from RO 503.2 million. Total public expenditure amounted to RO 5.763 billion, compared to RO 3.942 billion during the same period last year. Defence and National Security expenditure was RO 1.723 billion, while that of civil ministries stood at RO 1.411 billion.

The fall in global food prices in the second half and soft housing markets in the UAE and Qatar have helped, but core inflation also remains subdued, said the NBK brief. Stable food prices, low inflation rates abroad, the impact of the strengthening dollar on import prices and a continued emphasis on cost control among regional businesses will help keep price muted, it stated.

Despite a sharp drop in oil prices in the second quarter, the report expects regional crude oil production to stay close to its 1344797083841281500 recent high of 17.2 million barrels per day (mbpd) this year, as Saudi and other Gulf exporters seek to boost stock levels to guard against non-GCC supply disruptions.

The Kuwaiti bank pointed out that the prospect of a major – and sudden – fiscal contraction in the US in 2013 represents a huge risk to the global economy even if the euro zone muddles through.

Under these conditions, the Gulf non-oil growth is likely to slow, though it would avoid recession. “In spite of healthy activity levels and a pick-up in money and credit growth, inflation has generally remained low and even decelerated in some countries. On a weighted average basis, it stood at 3 per cent in May”, it adds.