Your life just got a whole lot easierJuly 26, 2015 8:55
CUTTING BACK: IMF says the GCC should cut state spending growth
In 2011, total state spending in the GCC jumped by some 20 percent as governments responded to unrest in the Middle East by boosting social spending.
October 30, 2012 9:44 by Reuters
Most Arab oil exporting countries in the Gulf should plan to reduce growth in government spending to make their budgets more sustainable, as their combined surplus could turn into a deficit around 2017, the International Monetary Fund said on Monday.
“While expansionary fiscal policies helped the region weather the global financial crisis, given the healthy economic expansion currently underway, the need for continued fiscal stimulus is diminishing,” the IMF said in a report.
“Most GCC countries should therefore plan to reduce the growth rate in government expenditure in the period ahead.”
In 2011, total state spending in the six Gulf Cooperation Council economies — Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain — jumped by some 20 percent in dollar terms, the IMF said. Governments were responding to unrest in the Middle East by boosting social spending.
The GCC’s combined fiscal surplus reached 13 percent of gross domestic product last year, the IMF estimated, and it is projected to remain at roughly that level this year.
But the leap in spending lifted the oil price levels needed to balance budgets to record highs, making the countries more vulnerable to a downturn. Oil export receipts account for over 80 percent of government revenue in the region.
“Along with continued increases in government spending, fiscal and external surpluses are, with unchanged policies, projected to decline in 2013 and beyond, with the combined fiscal surplus turning to deficit around 2017,” the IMF said.
It noted that the outlook for oil prices was extremely uncertain.
“A rapid deterioration in the global economy could bring about developments similar to what the region experienced in 2009, including a sharp fall in oil prices and disruptions to capital flows,” the IMF said.
In a downside scenario, the IMF assumed a $30 oil price drop that started in 2013 and lasted through the medium term.
“The GCC in aggregate would under the downside scenario go into deficit by 2014, and all GCC economies would run fiscal deficits by 2017,” it said.
Bahrain and Oman would stand out with budget deficits of 16 percent of GDP, but Saudi Arabia would also reach a double-digit deficit, the report estimated.
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