Gulf fiscal deficit to stay high in 2017, narrow in 2018

The fiscal deficit for Gulf Cooperation Council (GCC) states will remain large at $140 billion in 2017, and will likely narrow only gradually next year, the Institute of International Finance (IIF) said in a recent report.

The deficit, which excludes investment income, will stand at 9.5 percent of GDP in 2017, declining to $120 billion – 7.7 percent of GDP – in 2018.

“While two-thirds of this is attributable to Saudi Arabia, deficits remain large as a proportion of GDP in Bahrain and Oman,” Gıyas Gökkent, senior economist at IIF, said in the report.

Kuwait, Qatar, and the United Arab Emirates (UAE) are also facing fiscal shortfalls, but these are offset by significant investment income.

The GCC countries have been financing the deficits through external and domestic borrowing, as well as by tapping their foreign assets.

According to IIF estimates, the Gulf sovereigns have borrowed $85 billion externally since early 2015, with $54 billion raised in 2016 and $28 billion in first half of 2017.

While most countries came to markets early in 2017 to get ahead of higher funding costs due to US rate hikes, ongoing financing needs will lead to new sovereign issuance, IIF said.

Saudi Arabia raised $9 billion in April and could raise another $6 billion in the second half of this year. Kuwait raised $8 billion in the first quarter and is expected to issue again next year, IIF said.

Only the UAE and Qatari governments have not tapped external markets so far this year.

“With a smaller deficit, due to higher oil prices, we believe that Abu Dhabi has decided to solely draw down on ADIA’s foreign assets,” Gökkent said.

Meanwhile, Qatar has not directly tapped external markets, but the government has been borrowing domestically and this is, in effect, being funded from external sources by the banking system, the report said.

Write to Nadeshda Zareen at nadeshda.zareen@argaamplus.com