Funding needs for Arabian Gulf fall by more than half as oil prices increase

The Arabian Gulf’s funding needs will fall to 5 per cent as a portion of combined gross domestic product between 201821, thanks to higher oil prices and government policies, according to S&P Global Ratings. This compares with 12 per cent of GDP from 2015-2017.

The six members of the GCC will cumulatively need $300 billion (Dh1.1 trillion) between 2018 and 2021 to finance their fiscal deficits. About 50 per cent of funding is going to Saudi Arabia, the biggest Arab economy, the rating agency said in a report yesterday.

This compares with $450bn, equivalent to 12 per cent of the combined GDP of GCC states, spent between 2015 and 2017.

GCC funding needs “are now accumulating at a slower pace owing to higher oil prices and government policy responses”, the rating agency said.

Gulf countries have introduced measures to shore up revenue and trim expenditure after the oil price plunged in mid-2014 from $115 per barrel to less than $30 in the first quarter of 2016.

Prices have rebounded this year, with oil around the $73 level. Notably, the UAE and Saudi Arabia have introduced taxes, including 5 per cent VAT, and increased energy and electricity prices to control their finances. Bahrain is introducing 5 per cent tax from January.

Next year, the cumulative GCC deficit will reach $75bn, or 5.5 per cent of combined GDP, compared with the 2016 figure of $190bn, or 16 per cent of combined GDP, S&P said.

The rating agency estimates the GCC deficit will stabilise at 6 per cent of GDP over the 201821 period, compared with 5.5 per cent this year.

“Our assumption of falling oil prices and higher spending will likely offset planned revenue-raising measures and widen fiscal deficit in both Abu Dhabi and Kuwait,” S&P said.

“However, the denominator effect of rising GDP should maintain the fiscal deficit at the 6 per cent of GDP level for the region as a whole.” S&P also projects that financing needs will be split 70:30 per cent between debt and assets during the forecast period, with Qatar and Bahrain sticking to debt and Kuwait and Abu Dhabi drawing down assets.

“We base these assumptions on the financing trends of the past few years, governments’ explicitly stated policy decisions, and our view of the availability of assets,” S&P said.

“Apart from Oman and Bahrain, GCC governments still have an exceptionally high level of government liquid assets at their disposal.”

The UAE is among those countries with highly liquid assets, Central Bank Governor Mubarak Al Mansoori said on Tuesday.

Government deposits in UAE banks hit an all-time-high of Dh286bn by the end of September this year, up by Dh74bn in the first nine months of 2018, according to the latest statistics from the Central Bank.

The uptick in deposits is in large part attributable to rising oil prices. These have increased 35 per cent during the past 12 months, boosting the overall assets of the banking sector.

Government fiscal surpluses since the beginning of the year amounted to Dh186bn, according to Ministry of Finance data.

The banking sector continues to attract inflows in the form of non-resident deposits. These rose to a two-year high of Dh205.4bn at the end of September and accounted for 11.8 per cent of total deposits made in the UAE.

The six GCC members will cumulatively need $300 billion between 2018 and 2021 to finance their fiscal deficits