2017 will have its share of fresh challenges and opportunities for Gulf economies. Topping all, the need to contain public spending will remain paramount though not as harsh as in the recent past.
Several states have put behind two difficult years of finding ways to cut costs and raise revenues to deal with the adverse effects of low oil prices. According to the 2016 “BP Statistical Review of World Energy”, the US and Saudi Arabia each accounted for 13 per cent of global output of crude oil in 2015. Russia emerged third with 12.4 per cent of the world’s share.
It is argued that the steady rise in the production in the US contributed to the plunge of oil prices. The US has been enhancing production together with limiting imports, especially from Middle East producers.
Nevertheless, there are improved prospects for oil prices thanks to the latest accord among Opec members. Prices have hovered around $50 a barrel since the last meeting of the oil grouping in November. It seems the environment of oil prices being below $40 per barrel is essentially over.
Undeniably, the petroleum sector will remain a primary source for treasury and export revenues of Gulf economies. Thereby, oil prices will have their impact on the well-being of GCC economies as they get through their budgetary plans.
Saudi Arabia, in turn the largest GDP among Arab economies, is leading the way with stronger than expected spending. The new budget projects expenditures at $238 billion, up 6 per cent from that budgeted in 2016.
Several GCC states may follow the Saudi model of enhancing public sector expenditure, thereby ending the trend of limiting budgetary outlays.
Collectively, GCC states are expected to place emphasis on ensuring implementation of schemes such as the Gulf Common Market and on utility projects. These were echoed during the 37th summit held in Bahrain last month.
The GCM allows for free movement of factors of production among member states. This particular project provides nationals of the GCC some of the material benefits of being part of a grouping.
On utility schemes, plans are underway for an integrating grid for water distribution by 2020, building on the success of an existing electricity grid.
Not surprisingly, the environment of low-oil prices would continue to serve as a catalyst for diversifying away from the petroleum sector. This is partially being carried out via higher non-oil revenues for public services where possible.
Economic and labour reforms should remain a priority for some GCC states during 2017. The labour reforms focus on granting additional privileges to foreign workers including the right of changing sponsors.
Bahrain plans to grant foreign workers overstaying to apply for flexible working permits. This makes qualified foreign workers their own bosses, but obliging them to pay all ensuing governmental fees.
Gulf countries must prepare the grounds for implementing value-added tax in 2018. It is probable that one or more member states would delay implementation on different grounds. However, a new setting is being placed where locals and visitors must pay taxes for goods, much like other parts of the world.
The writer is a Member of Parliament in Bahrain.
