GCC set to post first fiscal surplus in 8 years

GCC economic growth to outperform all its emerging markets’ peers in 2022 except Asia, with the UAE and Saudi Arabia leading this recovery



GDP growth in the GCC will accelerate to 5.1 per cent on a nominal GDP-weighted basis in 2022, with the oil and gas sector contributing meaningfully to this faster growth. — File photo
GDP growth in the GCC will accelerate to 5.1 per cent on a nominal GDP-weighted basis in 2022, with the oil and gas sector contributing meaningfully to this faster growth. — File photo
by

Issac John

Published: Thu 10 Feb 2022, 8:04 PM

GCC economies are positioned to rebuild their buffers in 2022 on higher government revenues and the rationalisation of expenditure in 2022 budgets, leading to an aggregate fiscal surplus of $27 billion this year, the first since 2014, economists said.

Analysts also expect GCC economic growth to outperform all its emerging markets’ peers in 2022 except Asia, with the UAE and Saudi Arabia leading this recovery, given their rebound in non-oil GDP, a resurgence in their domestic demand, and higher investment levels in line with national vision strategies.

The GCC, according to Maurice Gravier, chief investment officer, Emirates NBD Group, will see faster growth in 2022 as they continue to build on the progress made last year, despite the relatively tight fiscal policy, and some external headwinds.

Gross domestic product (GDP) growth in the GCC will accelerate to 5.1 per cent on a nominal GDP-weighted basis in 2022, with the oil and gas sector contributing meaningfully to this faster growth, Gravier said at a recent media briefing.

Ehsan Khoman, head of MUFG’s EMEA Emerging Markets Research Team, said the GCC 2022 outlook is markedly skewed to the upside in 2022. The robust vaccination programme, ongoing re-openings and higher oil prices, as well as production, are spurring a real GDP growth in the region, going forward.

“Following several years of having fiscal deficits, the GCC will rebuild its buffers in 2022. Higher government revenues and the rationalisation of expenditure in 2022 budgets will strengthen the GCC countries’ balance sheets and offer greater fiscal capacity to navigate towards a post-pandemic equilibrium,” said Khoman. This, according to MUFG Research, will lead to an aggregate GCC fiscal surplus in 2022 of $27 billion, the first since 2014.

GCC governments have focused on accelerating the pace of structural reforms to attract private and foreign investment and thereby support economic growth over the medium term.

“We expect this approach to continue in 2022. Saudi Arabia, the region’s largest economy, has penciled in a six per cent decline in spending in the 2022 budget even as revenue projections were increased,” said Gravier.

“An opportunistic mindset is key for 2022. This is why we start the year with less active deviations from our strategic positioning than in recent years, and a little more cash. We are for example neutral on both stocks from developed markets and gold, a change compared to 2021. We however of course see opportunities: stocks from the UAE and India, as well as debt from emerging markets, and importantly hedge-funds, with asymmetrical risk/return profiles,” he said.

Most analysts believe that the oil surge and austerity measures would support sovereign balance sheets with the GCC’s financing needs remaining limited at only $2.8 billion in 2022, and its debt capital markets’ needs at only $4.8 billion.

The recovery in the GCC economies gained momentum in the second half of 2021 as travel restrictions eased, tourism rebounded, and domestic demand strengthened. Regional PMI surveys pointed to an acceleration in non-oil sector growth in the UAE, Saudi Arabia, and Qatar, while the Opec+ agreement to gradually increase oil production from July contributed to a recovery in the oil and gas sectors as well.

In 2021, GCC governments prioritised the reduction of budget deficits, which had widened sharply in 2020, rather than accelerating GDP growth through increased spending. The recovery in oil prices last year helped to narrow deficits, but governments also remained committed to their tighter spending plans and other fiscal reforms that had been introduced in 2020.

— issacjohn@khaleejtimes.com


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