Pressures mitigated through GCC support

Many of the recipients need to work on fiscal and structural adjustments

Sovereigns in the GCC, Middle East and Africa have long been recipients of the GCC’s financial support.

As a proportion of GDP, funding support from GCC countries has been highest for Jordan, according to a recent report from Standard & Poor’s (S&P).

Jordan has seen heightened fiscal and external pressures since the start of the Syrian conflict in 2011 and consequently, a large influx of refugees. Budget grants from the GCC for the country peaked in 2011 at 4.9 per cent of GDP and have since subsided, with support mainly coming in the form of capital grants for approved projects.

Saudi Arabia, Kuwait, the UAE and Qatar had pledged $4 billion (Dh14.7 billion) in investment projects, of which $3.75 billion has been disbursed as of 2018.

Qatar has not disbursed its portion of $1.25 billion, mainly due to the scaling back of diplomatic ties with Jordan following the boycott of Qatar by other GCC and some regional countries since June 2017.

Following widespread protests in Jordan in June 2018 over the government’s fiscal austerity measures, Saudi Arabia, Kuwait and the UAE agreed to provide $2.5 billion in aid over five years. Qatar has pledged $500 million of investment in Jordan and jobs for 10,000 Jordanians in Qatar, which will support remittance inflows.

Fiscal cushions

Egypt has received the most GCC donor support in absolute terms, particularly after the regime change from President Mohammad Mursi of the Muslim Brotherhood in 2013. In the 2013-14 fiscal year, GCC funds came in the form of budget grants, deposits in the central bank, and grants for the purchase of energy products. Since the sharp fall in oil prices and its impact on GCC fiscal balances, Saudi Arabia, UAE, and Kuwait ended budget grants (apart from a capital grant from UAE in 2016-17) but extended maturing deposits in the central bank in 2017 and 2018.

Saudi Arabia has steadily increased deposits on an annual basis, with $7.5 billion outstanding as of end-October 2018. The UAE and Kuwait have deposits of $5.9 billion and $4 billion, respectively, in the central bank.

Bahrain experienced social tensions in 2011. GCC countries committed $10 billion over 10 years in project funding to Bahrain and Oman in 2011, via the GCC Development Fund to support economic development. The country has been experiencing high fiscal deficits and rising debt and low levels of foreign exchange reserves.

“The GCC countries announced a new aid package in October 2018 of $10 billion, which we expect will be distributed over five years subject to the implementation of fiscal reforms. We forecast that Bahrain’s fiscal deficits will narrow over the period,” said Zahabia S. Gupta, an S&P analyst.