31/03/2016 06:59 AST
GCC economies are cutting back non-essential expenditures and introducing healthy reforms, Alkhabeer Capital, the asset management and investment firm based in Jeddah, said in the 2016 edition of its report reviewing GCC governments’ budgets.
“The recent budgets in Saudi Arabia, Qatar, Oman and the UAE, for the first time in decades, saw cutbacks in expenditure, subsidy reforms and plans to diversify the revenue base, indicating that the Gulf countries are gearing up to cope with the recent downturn in oil markets,” said Alkhabeer Capital in its report. “Kuwait and Bahrain are also set to release their budgets in mid-2016 and are anticipated to undertake similar measures,” the report said.
Citing the emergence of government imperatives in the region to refocus budget priorities and reduce extravagance, Alkhabeer’s report expects expenditure levels in the GCC to reflect a cautious stance on spending as the region adopts unprecedented measures to counter the plunge in oil prices since June 2014.
The commitment of GCC countries to move away from expansionary budgets is expected to strengthen as oil prices remain at continually low levels. Recent budgets announced by nations in the GCC have shown a decline in overall expenditure levels. Saudi Arabia lowered its budgeted spending for 2016 by about 14%, compared to the actual expenditure in the previous year. Likewise, Qatar and Oman announced lower outlays for this year.
However, the report pointed out that despite cutbacks in overall expenditure, most Gulf economies have retained a spending focus on key sectors such as education and healthcare, underlining the GCC governments’ pledges to continue spending on essential sectors seen as critical to long-term economic development and diversification.
“Although Saudi Arabia has allocated a lion’s share of the overall spending to defense and security, the Kingdom has allocated about 35% to the education and healthcare segments. The UAE also approved a slightly smaller federal budget for 2016, but allocated more than half of the projected expenditure to sectors such as education, health, social development, and public services. Even the smaller Gulf States of Qatar and Oman announced conservative budgets for 2016 which focused on lower expenditure levels but prioritized social spending,” the report remarked.
Alkhabeer’s research indicated that, over the course of 2016, the GCC would continue to rationalize its subsidies’ structure as governments attempt to reconcile undue pressure on state budgets. Gulf nations have been reluctant to alter their subsidy policies in the past, but as oil prices continue to plunge, Gulf states have introduced reforms that are expected to improve budgetary efficiencies and help governments diversify their funding channels.
In terms of widening their revenue base, Alkhabeer’s budget report examines the plans of the GCC governments to boost non-oil revenues through the privatization of state-owned companies. In its budget, Saudi Arabia disclosed plans of reducing its stake in a few public companies within the next five years, while Oman has already confirmed that three state-owned companies are expected to float IPOs on the Sultanate’s local bourse this year. Qatar has also indicated that it plans to privatize a few state-run firms, and Alkhabeer Capital expects other economies in the region to follow suit to help increase revenues and support developments in the private sector.
Alkhabeer’s report also noted the prospects for higher taxes in the Gulf region, which have been steadily gaining steam as GCC nations initiate measures to compensate for lower oil revenues. According to Alkhabeer, the much discussed pan-GCC VAT would likely be a major economic reform that will boost revenues and reduce the fiscal burden on respective governments and there are indications that income and corporate taxes could be introduced, or increased
Saudi Gazette
Please wait...
