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Analysis

GCC deficits likely to persist through to 2021

by Bhavin Patel in London

Fri 26 May 2017

GCC deficits likely to persist through to 2021 Enlarge Chart loading Image

In 2013 oil export revenues exceeded $1.2tn for Gulf Co-operation Council economies (Saudi Arabia, Bahrain, Kuwait, the United Arab Emirates, Oman and Qatar). The International Monetary Fund projects these revenues will fall to $720bn by the end of 2017. Since oil revenues make up on average more than 45% of tax revenues, the resulting budget deficits of over 9% in GCC countries are unlikely to recover in the near term.

Responding to the fall in oil revenues, GCC members have drawn down their fiscal buffers, including international reserves and sovereign fund savings. This has enabled fiscal authorities to withstand fluctuations in the oil price without sacrificing their exchange rate pegs.

Access to international capital markets has allowed GCC economies to raise $66bn in bond issuances in the last year, enabling them to meet short-term debt obligations. By the end of 2016 total dollar debt in the GCC reached a record $244bn – new highs are likely to be hit as budget deficits persist through to 2021.

A series of painful fiscal consolidation efforts further subdued some pressures. High levels of government spending have been key for regional economic development and are the chief mechanism for transferring the benefits of oil wealth to the population. Years of social spending have increased public employment and wages, as most of the population continues to be employed by the public sector.

Bhavin Patel is Economist at OMFIF.