The low price of oil will test governments in the Middle East and Africa
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Start in Nigeria, where oil accounts for roughly 90% of exports and two-thirds of government revenue. The finance minister has already called for a review of the budget, which was based on an oil price of $57 a barrel. Yet austerity will prove difficult in an economy so lethargic that it is barely keeping pace with population growth. There is little space for borrowing: 65% of government revenues go to servicing existing debt. Nonso Obikili, a Nigerian economist, assumes that the government will simply print money to pay civil servants, which would stoke inflation.
The price war will make a mess of public finances in parts of the Gulf, too. Oman’s 2020 budget predicted a deficit of 8% of gdp even with oil at $58 a barrel. Prices at $30 would send the deficit as high as 22%. Bahrain, a middling producer that nonetheless relies on oil for around 75% of public revenue, had hoped to balance its budget by 2022. Both will probably have to cut spending and borrow money. Their debt loads have soared since 2014, when years of $100-a-barrel oil came to an end. Oman now owes more than 60% of gdp, up from 5% in 2014, while Bahrain’s debt load jumped from 44% to 105%.
Wealthier countries can muddle through for years. Saudi Arabia had budgeted for a $50bn deficit in 2020. Goldman Sachs, a bank, thinks it could now surpass $80bn; other economists put the hole at $100bn. But the kingdom has about $500bn in the central bank, and it can borrow cheaply, with ten-year bonds trading at yields of less than 4%. Saudi debt is 24% of gdp, low by global standards. However, it is a marked increase from 2014, when the kingdom owed less than 2% of gdp.
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Low oil prices will be even more painful in Iraq, which relies on the black stuff for 90% of government revenue. The country is gripped by political paralysis. Months of protests brought down the government in October, and the prime minister-designate, Muhammad Tawfiq Allawi, failed to form a new one. His predecessor raised public spending by 45% last year and doubled the deficit. Almost half its spending is on public-sector wages and pensions; with oil cheap, the state cannot make payroll.
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With less oil money around, African and Middle Eastern leaders may find it harder to keep the masses placid. In Angola elections are due in 2022 and the mpla, which has ruled since independence in 1975, may face a genuine challenge. In Nigeria, the emir of Kano, who is a former central bank governor and critic of President Muhammadu Buhari’s economic policies, was dethroned on March 9th for showing “insubordination” to local authorities. Just before the oil price crashed, the authorities in Saudi Arabia arrested several influential royals, including Ahmed bin Abdel-Aziz, the king’s brother. In the absence of black gold, some strongmen will no doubt resort to the iron fist.
