Economic growth rates for the Gulf countries are not exceptionally high this year, though they hold out the promise of improvements next year. This reflects the adverse effects associated with the plunge in oil prices since mid-2014.
This remains astonishingly low primarily to an abundance of supply to the extent that negative geopolitical developments in the Middle East and North Africa have not conspired to raise prices. The IMF projects average GDP growth level for the six GCC countries declining from 3.3 per cent in 2015 to 1.8 per cent in 2016.
However, the forecast calls for stronger GDP growth rate of 2.3 per cent in 2017 on the back of fiscal consolidation like finding ways to generate new revenue sources. These entail cutting subsidies for fuel and foodstuffs plus applying additional fees on governmental services.
For instance, effective September in Kuwait, the price for environmentally-friendly low-emission ultra petrol was increased by 83 per cent to $0.55 per litre while the cost of low-octane petrol was increased by 41 per cent to $0.28 per litre. For its part, Bahrain has stopped offering red meat at subsidised prices.
Reducing public expenditures where possible is a common practice in GCC countries, and notably so in Saudi Arabia, the largest regional economy. Saudi authorities are using the oil price debacle as an opportunity to streamline public finances. There is logic in the move, as collective fiscal deficits are projected at 11.8 per cent of the GDP in 2016.
Some GCC countries should be doing better than do. For instance, real GDP growth level for Qatar is projected at 3.6 per cent between 2016-18 thanks to steady growth for non-oil sectors.
Spending related to the World Cup 2022 in Qatar is continuing without abating. The government is spearheading investments, in turn supported by private sector investors, from local and international sources.
Kuwait is projected to post the lowest GDP growth in the GCC partly reflecting disagreements between the appointed cabinet and the elected parliament about spending priorities and economic reforms. Sadly, Kuwait lags behind other GCC countries in several global indexes like doing business.
The 2017 version of the report gives the UAE and Kuwait the 26th and 102nd rankings, respectively. These are the best and worst performances among Gulf economies. In fact, the UAE ranks ahead of many EU member states let alone Arab countries.
Kuwait nationals went to poll over the weekend to elect members for the 50-member assembly. Economic matters like the drive to cut subsidies and finding jobs for locals are cornerstones of the elections. The majority of Kuwaiti nationals work for the public sector and state-owned agencies.
Remarkably, Bahrain’s economy is projected to do well thanks to financial support extended by the UAE, Kuwait and Saudi Arabia. The economy is bound to register a solid growth of 2.2 per cent in 2016, certainly outstanding in the low-oil price environment.
There is plenty of evidence of regional financial assistance for Bahrain. The UAE is providing the majority to upgrade Bahrain International Airport, while Kuwait is providing for expanding road networks. Saudi Arabia is reportedly granting Bahrain more than the required share of a jointly-owned offshore oilfield.
Lower spending by the public sector only leads to lower confidence on the part of private sector investors. Clearly, the trend of dampened governmental spending is not sustainable as far as economic performance is concerned.
The writer is a Member of Parliament in Bahrain.