Fiscal Re-engineering in GCC – recent trends in diversification

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n the wake of the oil price slow down, the GCC economies realigned their budgets for 2015-2016 keeping in mind the challenges of higher growth, diversification, infrastructure needs , education and employment. While the GCC governments have outstanding debt at only 13% of their combined GDP – a very low level compared to international standards, yet the GCC governments have considered restructuring their fiscal models in the wake of the oil price volatility. Most of the regional governments have revealed their plans to rationalize current situations and to introduce new sources of revenue in the future. While Oman’s 2015-1016 budget deficit is estimated to be around OMR 2.5 billion with a 5% cut in spending, the Sultanate has reduced its energy and oil product subsidies to 4% which are at half of 2013 figures. It is considering new sources of taxes and customs duties and has announced divestment plans in terms of selling off its stakes in state owned enterprises like Orpic.

Kuwait, on the other hand, being most reliant on oil revenues among its regional counterparts, has announced almost 18% cut in spending during 2015-16. Kuwait has stopped subsidies on diesel, kerosene, and aviation fuel with plans in place for petrol, electricity, and water.

Currently Kuwait has a 15% profit tax on foreign companies only but is on its way to introduce one for domestic companies in consultation with the IMF. It is launching PPP (Public Private Partnership) projects as part of its fiscal restructuring activity. Countries like Kuwait have lowered expectations of oil prices to $45 per barrel for budgetary purposes while Qatar has estimated $65 per barrel.

Dubai now raises 74% of its income from government services and another 21% from financial sector taxes and customs duties.

Growth rate in GCC as a whole is estimated to remain at 3.5% in 2015. The growth in non –hydrocarbon sector remain robust with little or no growth in the hydrocarbon sector in the next couple of years. Most of the non-oil sector growth is pinned to long term project spending and fiscal policy restructuring.

Though Bahrain’s GDP growth rate in 2014 marginally decelerated to 4.5% against 5.3% in 2013, yet the non-oil sector growth rate of 4.9% in 2014 was sharply higher against a 3% growth rate in 2013. This registers hope that the non–oil sector growth will pick up further and plans for fiscal policy re- engineering will boost our domestic economy further.

(Reference: Bahrain Economic Quarterly, 2015, Copyright ©2015 by the Bahrain Economic Development Board.)

Dr. Subhadra Ganguli currently works in Ahlia Universty as an Associate Professor in Economics. She holds a Ph.D in Economics from University of California in Riverside. Dr. Ganguli has experience in academic teaching, research and Quality Assurance for the last 20 years in India, USA and Bahrain. She has worked at the BIBF during 2004-August 2014 in various capacities. For comments and questions, please feel free to contact her at Subhadra.ganguli@gmail.com