Falling revenues force Persian Gulf states to curb their spending
For most of the past decade, the money flowed like oil from the local gushers. All told, nearly $1 trillion poured into the sparsely populated, energy-rich Arab states along the Persian Gulf.* Now that stream has dwindled sharply. This year the region will take in only about $60 billion in oil revenues, down one-third from 1982 and only about one-half the level of two years ago.
Along with the fall in oil prices, the region's economy has been hit hard by the three-year-old war of attrition between Iran and Iraq. That conflict could expand and seriously curtail oil shipments. Moreover, the two combatants sharply reduced their imports of Western goods.
Last year's spectacular crash of the Souk al-Manakh, Kuwait's unofficial stock market, has also had a depressing effect. More than $90 billion in debts was outstanding when the wildly speculative market collapsed. While the Kuwaiti government has moved to bail out small investors, losses are still widely felt. "The debacle has cast a terrible shadow over business in the gulf," notes one foreign observer.
All these troubles have plunged the gulf states into a unique recession. On the one hand, budgeted government spending, which fuels the economies of the area, has followed the path of energy earnings and taken a tumble. In Saudi Arabia (pop. 9.7 million), the largest and most energy rich of the Arab gulf nations, officials have allocated $75.4 billion for the current fiscal year, down 17% from the previous period. But the region's wealth remains so great that such cutbacks have not yet caused much hardship. "The gold rush is over," says one U.S. diplomat stationed in the area. "But that doesn't mean that there's no gold out here. It just means that you can't pick up the nuggets on the street any more."
Indeed, a slump by gulf standards might look like prosperity to much of the rest of the world. Signs of the downturn's unusual nature are apparent everywhere. "Recession!" shouts the ad in the Khaleej Times, a daily newspaper in the United Arab Emirates port city of Dubai. "Gold watches at half the actual price!" That is unlikely to mean a steal, however, since the Girard Perregaux timepieces normally cost up to $6,000.
Nevertheless, the decline is having an impact. In Qatar (pop. 260,000), government ministries have been asked to trim their payrolls by an average of 20%. In the United Arab Emirates (pop. 790,000), officials are considering a reduction of as much as 22% in state employment. That would mean a loss of some 10,000 positions.
Such public belt tightening has led to a new eagerness on the part of applicants for work in the private sector. "I had six or seven young men in here recently who were willing to take the jobs and salaries we were offering," said one Western banker in Bahrain (pop. 330,000). "These were people fresh out of school who in the past would have been asking for and probably getting the sky."