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GCC deficit may fall to 9% in 2016 – NBK

GCC deficit may fall to 9% in 2016 – NBK
Sovereigns have issued some $44 billion in bonds in the first half of 2016 (Photo Credit: Arabianeye-Reuters)

Mubasher: The GCC economies are foreseen to be marginally affected by several factors; however, NBK research unit has revised their outlook due to more firm government action to reduce fiscal deficits, according to a recent statement.

Most GCC countries moved rather fast to enact spending rationalization and subsidy cuts, Kuwait being the exception. 

Oil prices have recovered from recent January 2016 lows, yet they are still in the low $50s or below (Brent basis), and are not expected to return to their heady $100 levels any time soon. 

“The GCC governments have thus had since mid-2014 to adjust to this new reality and are moving decisively to address it, including a vast 2030 economic plan in KSA. The KSA plan aims at diversifying the economy, raising non-oil revenues, creating jobs and even privatizing part of the oil wealth/production of the country. Kuwait is also floating the idea of privatizing some downstream oil activity,” according to NBK statement.

MENA economies are expected to grow 2.9%. NBK research unit has anticipated outcomes close to those numbers, though the bias and risk (acknowledged by the IMF) has to be on the downside. 

“All GCC countries are expected to post further deficits in 2016. The total GCC deficit was $132 billion in 2015 following a surplus of $33 billion in 2014. This was a deficit of 10% of GDP, which we project to fall to 9% in 2016, and then to less than 4% in 2017, as governments address the problem,” NBK said.

GCC countries are also contemplating new revenues, a VAT tax has been discussed and could come in 2018 or 2019 (5%), NBK said, adding that deficits have led to debt financing. 

Sovereigns have issued some $44 billion in bonds in the first half of 2016, led by KSA. The issuance started in local domestic markets, but Abu Dhabi, Oman, and Qatar have already tapped the international market, and the others will follow, NBK noted.

NBK projected real GDP growth of 2.2% and 2.6% for 2016 and 2017 respectively, almost 1% below previous projections. Non-oil GDP should gain 3.2% and 3.7% in the two years, while oil GDP should edge up less than 1%. 

“Liquidity, which tightened a bit since the Fed hiked rates 25 bps in December 2015, and since deficit financing became an issue, remains very manageable,” NBK added.