The majority of Gulf Co-operation Council (GCC) states will continue to run fiscal deficits and accumulate debt if oil prices remain moderate according to a recent report from rating agency Moody’s.
The report criticises fiscal reforms in the GCC as slow and uneven. These measures were designed to reduce state’s dependence on oil revenues and while they have helped to slow the fiscal deterioration that has resulted from falling oil prices, they have not been as widely effective as was hoped.
This is due to both uneven implementation and a recent change in policy to focus on preserving living standards and social stability rather than persist with unpopular austerity measures, according to the report’s author and Moody’s vice president Alexander Perjessy.
“The implementation of fiscal consolidation measures and reforms has been uneven across the six GCC sovereigns and has so far been more concentrated on the expenditure side,” said Perjessy. “Most GCC countries have recently begun to reverse these cuts, with total government spending across the GCC rising by around 10% in 2018.”
By way of example, only three of the six GCC states – Saudi Arabia, UAE and Bahrain – have implemented the 5% value added tax that was agreed by all six states back in 2016.
While accumulated assets will offer some protection to any downside resulting from oil shocks, Perjessy stated that higher spending and limited non-oil revenue increases will see debt burdens continue to rise for most GCC sovereigns, putting additional pressure on interest bills and further slowing fiscal consolidation momentum.
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