The International Monetary Fund is discussing a bailout of Azerbaijan, hard hit by tumbling oil prices. Venezuela is out to go bust — again — for the same reason. Ecuador looks about to go the same way. More important countries may follow them — most significantly Russia and Saudi Arabia. Neither of them looks solvent for much longer with commodity prices at these very low levels.
We could soon be back in a full-scale sovereign-debt crisis, except this time it will be commodity exporters that are caught up in the maelstrom rather than peripheral euro-zone countries. But just like the euro-zone crisis, the losses will soon ripple out to the banking system, and before long there may well have to be series of emergency bailouts.The key question will be whether that can be used to drive through reforms — because there is not much point in simply bailing out countries that can’t rely on energy exports any more.
The first cracks are starting to appear in Azerbaijan, one of the largest oil exporters among the former Soviet states. It has already opened talks with the IMF about emergency assistance as it burns through the reserves built up during the years when oil was trading at $100 a barrel or more. It has already ripped its way through more than 60% of its reserves, and is discussing a loan package of more than $4 billion.
Next up, Nigeria. It has already asked for $3.5 billion in loans from the World Bank and the African Development Bank to help it through the squeeze in cash caused by the tumbling price of its oil exports.
What about the two really big oil-driven economies, Saudi Arabia and Russia? Saudi Arabia’s finances have never been famous for their transparency. It has some of the lowest production costs in the world, but it also has huge expenses and virtually no other sources of income.
Even on official figures, the country ran a budget deficit of $100 billion last year, and with the oil price still falling, and despite cuts, this year it unlikely to be much better. That amounts to 15% of gross domestic product, which makes Greece look positively frugal.The Saudis have plenty of assets to fall back on but when you are spending 15% more than you earn every year you burn through a lot of cash very quickly.
Russia’s budget deficit is not as high as that. Finance Ministry projections put it at $20 billion for this year, or around 3% of GDP. But that was based on oil at $40 a barrel, which seems like a distant memory now.
Only this week, Deutsche Bank DB, -6.11% had to put out a statement attempting to reassure investors it was “rock-solid” — but funnily enough they don’t usually find statements like that very reassuring at all.
The world’s resources, especially those of the IMF and World Bank, have already been stretched by the last sovereign-debt crisis. Ireland may be off the medicine, but Greece and Portugal are still in intensive care. Greece doesn’t look like it will be able to stand on its own two feet any time soon.