OREANDA-NEWS. Large cash reserves are helping Gulf Cooperation Council (GCC) members to manage the sharp decline in oil prices but social pressures could push those countries to the brink, the IMF said.

GCC countries are meeting the crude price shock from a position of strength after accumulating abundant financial reserves and trade surpluses, IMF Middle East and Central Asia department deputy director Aasim Husain said yesterday. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE are members of the group, with combined output of about 17.5mn b/d in December.

But the IMF is more worried about the social implications of budgetary cuts being made or proposed as low crude prices linger because of the effect on the labor force and security issues, Husain said during a discussion at the Washington, DC-based think tank Wilson Center.

The IMF estimates that almost 30pc of new labor force entrants in GCC countries could face unemployment in 2020. Social pressures have been rising and security issues today are worse than they have been in 20 years, Husain said. "If you couple that with spending cuts, are we going to get to a breaking point in one or more countries? It is very hard to predict."

The IMF and the World Bank are calling for energy subsidy reforms and economic diversification to reduce the reliance on oil and natural gas and to promote job creation in the private sector. But the financial reserves may run out before the positive effect of reforms kick in, World Bank lead economist Franziska Ohnsorge said.

The energy subsidy reforms Saudi Arabia and other GCC countries carried out over the few months resulted in lower fiscal breakeven oil prices, Husain said. The IMF in December estimated that metric at $103/bl for Saudi Arabia.

Analysts are using the metric as a gauge for the ability of state-owned or -controlled oil companies to sustain production in a low price environment. But Husain cautioned against over-reliance on the use of fiscal breakeven oil price, which he called a "fictitious" measurement. "Fiscal breakeven prices are falling, but so are oil prices," so the countries still face large budget deficits.

Among the GCC members, only Kuwait and Qatar were able to run fiscal surpluses last year and only Qatar may be able to do so this year, he said.

The IMF and the World Bank are seeing signs of mounting financial difficulties in other oil producing countries, including Azerbaijan and Nigeria. Azerbaijan, which produced 0.81mn b/d in November, on 28 January hosted delegations from international financial institutions, which would mark the first time in 15 years that the country asked for financial assistance from the IMF.

Nigeria on 1 February asked the African Development Bank for $1bn to help cover the budget deficit and is discussing financial support from the World Bank, in exchange for undertaking a program of policy reforms. The country's crude output was 2.2mn b/d in December.

The World Bank on 25 January cut its 2016 crude price outlook to $37/bl, which would amount to a 27pc year-over-year decline. The rebound trajectory for crude prices in the next five years should be more flat than the upward movements that followed market price lows in 1986, 1998 and 2008, the World Bank said.