Recalibration of growth initiatives to spillover to 2017
22/09/2016 05:14 AST
After recording an estimated $119 bn of budget deficits in 2015, mainly due to lower oil revenues, GCC budget deficits are forecasted to come in at over $153 bn in 2016, based on our analysis of IMF data for GCC countries.
Lower oil receipts and spending gaps would also mean that Saudi Arabia would incur large budgetary gaps, and is expected to contribute to about 55% of the budget deficits of the region in 2016.
Budget deficits are likely to stay over the near future, as deficits of over $100 bn of deficits are expected each year until 2021, as per our analysis. Current account balance for the GCC is also expected to worsen in 2016, as the overall current account deficit (CAD) is expected to reach 6.6% of GDP.
In 2016, we further estimate GDP for the GCC region to drop by 2.2% y-o-y to $1.38 Trillion, based on data from the IMF, lower than each of the previous five years. Nevertheless, GDP for region is expected to grow over 2017-21, as per our analysis.
The drop in overall output as a result of lower oil GDP has also triggered various spending controls for both current and capital spending from the various GCC economies. A case in point is reportedly, Saudi Arabia’s review for cancellation of $20 bn of projects, to augment better fiscal stability. Similar measures along with slashing budgets are being studied across GCC countries, the implementation of which are mostly likely to spillover to 2017, as per our expectations.
Inflation trends reported for H1-16 suggested that consumer prices were broadly positive across GCC nations as inflation ranged between 1%-3% as of Jun-16 as against 2015. Inflation in the GCC for 2016 is expected to come in at 2.8%, based on estimates. Data on credit disbursed across the GCC was also positive in the early part of the year, as quarterly lending grew by 1% -2% average.
Amongst the prominent sovereign ratings action witnessed in Q2-16 was Saudi Arabia’s ratings downgrade by Moody’s ( Aa3 to A1) & Fitch (AA to AA-), as lower oil prices and resultant deteriorating government finances led to the downgrades. Kuwait & Qatar remain the highest rated GCC countries by the ratings agencies — S&P, Moody’s & Fitch.
Kuwait
Despite the drop in oil prices, Kuwait’s real GDP is expected to grow by 2.4% y-o-y in 2016 as per latest IMF estimates, driven by higher oil production in 2016 (2.91 mb/d) as against 2015 (2.86 mb/d), which should in turn lead to an oil GDP growth of 2.0% for the current year. Non-oil GDP growth is expected to remain stable at 3% y-o-y, despite current spending being curtailed to adjust to a lower oil price environment, as key projects would be prioritized.
Total government revenues for Kuwait plunged by 39% y-o-y to KD 15.1 bn during 2015/16 as compared to KD 24.9 bn during 2014/15. The drop was in large part attributed to the fall in oil revenues, which more than halved y-o-y (-52%), to KD 10.8 bn. Non-oil revenues however improved by 79% y-o-y during the same period to KD 4.3 bn. On the other hand, expenditure went down by 12% y-o-y for the aforementioned period to KD 18.9 bn, despite capital expenditure growing y-o-y by 4% to reach KD 1.9 bn. Government finances swung into the negative over 2015/16 from a surplus in the year prior, as a deficit of over 25% of total revenues was recorded over the period.
Credit facilities extended by Kuwaiti banks by the end of Q1-16 increased by 1.4% q-o-q to KD 33.7 bn. On a y-o-y basis however, credit extended improved by 8.4%, driven by the growth in Personal facilities, which grew by 12.5% over the period and accounted for over 42% of the credit disbursed by Mar-16. Credit to the real estate sector however declined on a y-o-y basis, as credit disbursed by the sector went down by 0.1%, while the construction sector witnessed a 2.4% growth in credit disbursed. Kuwait’s broad measure of money supply (M2) jumped by 5.9% q-o-q to KD 36.4 bn i
Arab Times
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