Dubai: High defence spending of Gulf countries in the context of the regional security challenges and decline in oil price is likely to weigh heavy on their respective fiscal positions.

Despite the short term fiscal challenges, the outlook for defence spending in Saudi Arabia, Qatar and the UAE remains positive, according to a new analysis released on Tuesday by IHS Inc. a global source of critical information and insight.

“Despite Saudi Arabia’s heavy exposure to oil price fluctuations, there have been very few signs of any severe reactionary adjustments to government spending trends,” said Craig Caffrey principal defence budget analyst at IHS Jane’s Aerospace, Defence & Security. “The Kingdom has only cut defence and security expenditure once over the last 15 years.”

The country’s defence budget has been expanding at a rate around 14 per cent a year over the last decade and accelerated to a rate of 19 per cent a year since 2011. “We certainly expect a significant slowdown in the short term but longer term prospects remain strong,” Caffrey said.

IHS Aerospace, Defence & Security forecasts Saudi Arabian defence-specific spending to increase to around $60 billion a year by 2020 from its present $49 billion, making it the fifth-largest spender in the world by that time.

With April marking the full-month since the start of the Yemen campaign, analyst say going forward rising military spending could apply pressure on government finances.

Although the energy sector accounts for about 55 per cent of gross domestic product (GDP) in the UAE, the country’s ability to withstand a period of low oil prices has been bolstered by its relative economic diversity. While a more cautious approach may be adopted with regards to major procurement projects, the $5 billion of contracts announced at the International Defence Exhibition (IDEX) in February 2015 suggests that funding is still available.

“Moderate defence budget growth is expected in the UAE over the short term before accelerating from 2017 as the process of fiscal consolidation eases,” Caffrey said.

Qatar’s reliance on the energy sector is relatively low for the Gulf region, accounting for approximately 60 per cent of total revenues. Recent statistics suggest that the government has begun to utilise foreign reserves to support continued investment expenditure as revenue generation slows.

“Traditionally the military has not been seen as a priority by Qatar’s government. However, the announcement of $23 billion worth of potential defence procurement projects in 2014 marked an unprecedented increase in investment in the military,” Caffrey said.

Defence expenditure is therefore expected to remain at the elevated levels in the short term. In the longer term, the main obstacle will be whether the government continues to invest in defence once the current procurement cycle ends or whether focus will shift elsewhere.