DUBAI: Worries that Saudi Arabia may cut subsidies and state spending and raise taxes to cover its budget deficits in an era of cheap oil once again hurt its stock market yesterday, with a negative effect on neighboring markets. Kuwait stocks edged down 0.2 percent to 5,781 points.

The International Monetary Fund said on Wednesday that Riyadh was considering a wide range of fiscal reforms – many of which could hurt corporate profits, at least initially – to cope with a budget gap that would total well over $100 billion this year. That pushed the Saudi stock index down 2.7 percent on Wednesday and it slid a further 1.3 percent yesterday.

Petrochemical blue chip Saudi Basic Industries dropped 1.2 percent; the government could raise money by lifting subsidized, ultra-low gas feedstock prices for the industry. Banks were also weak with Alinma, the most heavily traded stock, down 2.1 percent. After dropping back in late August and September, five-year Saudi credit default swaps, used to insure against the risk of a sovereign debt default, have resumed rising and are around three-year highs above 130 points. That level implies a probability of default of less than 10 percent, but it still indicates Saudi Arabia is more likely to default than the Philippines, whose CDS are at 106 points.

Telecommunications firm Etihad Etisalat (Mobily) plunged 10.1 percent after reporting a surprise thirdquarter loss that it attributed to rising expenses, even though it slashed its capital spending. Rival Zain Saudi tumbled 4.0 percent after reporting a narrower thirdquarter loss that matched analysts’ forecasts. There were several gainers among the 10 most active stocks, however. Miner Maaden added 2.1 percent while Atheeb Telecom climbed 1.9 percent after reporting a 3.6 million riyal ($960,000) net profit for the third quarter, which was only its second quarterly profit since the start of 2012.

The United Arab Emirates and Qatar have stronger finances and are much more able to cope with cheap oil than Saudi Arabia, but a Saudi economic slump could hurt investor and consumer sentiment across the region. Dubai’s stock index dropped 1.0 percent yesterday. Construction firm Drake and Scull, which has considerable business in Saudi Arabia, fell 1.6 percent. Abu Dhabi slid 1.0 percent as real estate developer Aldar Properties sank 3.3 percent.

Qatar’s index lost 0.7 percent as Barwa Real Estate dropped 1.7 percent. But Qatar Gas Transport Co (Nakilat) rose 1.5 percent after posting a 7.6 percent rise in third-quarter net profit to 266.1 million riyals ($73.1 million); QNB Financial Services had forecast 274.8 million riyals. Egypt’s index dropped 0.8 percent as liquidity migrated from other stocks to property developer Amer Group , which resumed trading after a three-day suspension as it split into two firms.

Amer itself swung widely before closing down 7.1 percent in its heaviest trade since February 2014. The new firm, Porto Group, was by far the market’s most active stock and last traded at 0.42 Egyptian pounds after fluctuating between 0.36 and 0.43. —Reuters