KUWAIT CITY: Gulf governments collectively registered a budget deficit of more than 11 percent of gross domestic product (GDP) in 2016 due to low oil prices, according to PwC.
Its latest Middle East research note said Oman was hardest hit with a deficit exceeding 20 percent of GDP last year while Kuwait coped best with the oil price slump, resulting in a deficit of 3.6 percent of GDP.
According to PwC economists, 2016 was probably the low point for oil exporters including most of the Gulf countries. They added in the report that economic prospects in 2017 should improve, helped by stronger oil prices over the year.
“Nevertheless, oil prices still remain well below break-even levels for most oil exporters and fiscal reform and deficit financing will continue to be key policy priorities in 2017 and beyond,” PwC noted.
PwC also said fiscal reforms in the Gulf region are hard to do and even harder to sustain – energy subsidies were cut across the board (resulting in a GCC average of 2.8 percent inflation).
“Popular backlash against rising petrol prices has caused some governments to reconsider this policy and yet many more difficult reforms are in the pipeline,” the report said.
It added that while this environment creates challenges for business, such as managing new taxes, the report identified a growing number of opportunities, particularly as the major Gulf economies look for alternative sources of financing. This includes the debt markets and privatisation initiatives.
Richard Boxshall, PwC Middle East’s economist said: “The flurry of activity in debt markets, privatisation and PPPs has only just got started and should generate interesting business opportunities in the next few years.
“Investors can expect to see GCC economies make increasing use of international debt markets and to work harder to attract foreign direct investment in the next few years.”
He added: “Foreign investors will want to see that governments have credible and committed plans to control the public finances. Introduction of VAT and excise tax in the GCC is an early opportunity for GCC governments to signal to international investors their commitment to fiscal reforms.”
