GULF ECONOMIC UPDATE Seizing the Opportunity for a Sustainable Recovery Fall 2021 Middle East and North Africa Region Gulf Economic Update Seizing the Opportunity for a Sustainable Recovery With a Special Focus The Wage Bill as a Reform Instrument in the GCC Fall 2021 Middle East and North Africa Region © 2021 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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TABLE OF CONTENTS Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii ٍ ‫ملخص‬ ‫واف‬ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii 1.  Recent Economic Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.  Tracking Diversification and Structural Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 3.  Outlook and Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 Special Focus: The Wage Bill as a Reform Instrument in the GCC . . . . . . . . . . . . . . . . . . . . . . . .21 Annex 1. GCC Summary Statistics Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Annex 2. Country Summary Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 iii List of Figures Figure 1a COVID-19 Infections are Declining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 1b Covid-19 Vaccination Rollout Has Been Successful . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 2 Private Consumption and Fixed Investment are Driving the Recovery . . . . . . . . . . . . . . . . . . . 2 Figure 3 Covid-19 Restrictions are Being Relaxed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 Figure 4 Bahrain and Dubai have Returned to pre-Pandemic Growth in Q2–2021 . . . . . . . . . . . . . . . . 3 Figure 5 Purchasing Managers Index (PMI) is on the Rise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 6 The GCC Contraction in 2020 Was Similar to Advanced Economies. . . . . . . . . . . . . . . . . . . . 3 Figure 7 The GCC Recovery is Robust, but it is Expected to Be Slower than Comparators . . . . . . . . . 3 Figure 8 Both Oil and Non-Oil Sectors Will Drive the Recovery in 2021 . . . . . . . . . . . . . . . . . . . . . . . . . .4 Figure 9 Overall GCC Crude Oil Production Has Increased, Led by Saudi Arabia . . . . . . . . . . . . . . . . . 4 Figure 10 Recovery in Domestic Demand and Global Commodity Prices Has Spurred inflationary pressures in 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Figure 11 Energy Prices Surged in 2021 Which has Increased Agricultural Input Costs . . . . . . . . . . . . 6 Figure 12 The Surge in Oil Prices Will Raise Revenues… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 13 …prompting Higher Spending by Some GCC States, While Fiscal Sustainability Concerns will Reduce Spending in Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 14 Fiscal Deficits are to Shrink as Oil Market Conditions Recover . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 15 After a Surge in 2020 to Finance Large Deficits, GCC Debt is to Stabilize in 2021 . . . . . . . . 7 Figure 16 GCC Current Accounts are Adjusting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 Figure 17 Exports Track Oil Prices as Oil Dominates the Export Baskets . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 18 Non-Hydrocarbon GDP Has Risen… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 19 …but Economic Activity Continues to Be Supported by Hydrocarbon Revenues… . . . . . . . . 12 Figure 20 …and Hydrocarbon Exports Continue to Dominate GCC Trade… . . . . . . . . . . . . . . . . . . . . . . 12 Figure 21 …with Non-Hydrocarbon Export Growth Muted in Most GCC States . . . . . . . . . . . . . . . . . . . . 12 Figure 22 Inward FDI Remains Limited… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 23 …and Per Capita GDP Growth is Behind other Regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 24 The Global Economy’s Recovery is Underpinned by Steady but Uneven global Vaccination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Figure 25 Energy Prices are Expected to Increase More than 5 Percent in 2022 before Falling Sharply in 2023 as Supply Increases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Figure 26 Despite Strong Performance in 2022–23, the Path of Recovery for the GCC is Muted compared to other Regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Figure 27 GCC Countries are to Return to pre-Pandemic Growth Levels by 2022, Except for Kuwait . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Figure 28 Current Account Balances Will Only Gradually Pick Up as Both Exports and Imports Recover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Figure 29 Deficits Will Mostly Persist in the Services Trade Balances and Primary and Secondary income Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 Figure 30 Favorable Oil Market Conditions Will Gradually Improve the GCC Fiscal Deficit… . . . . . . . . 19 Figure 31 ...and Lead to Surpluses in Qatar and Oman by 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Figure 32 However, Debt Will Mostly Remain Steady After a Peak in 2020 . . . . . . . . . . . . . . . . . . . . . . .19 Figure 33 The GCC Model Thus Far Has Led to Remarkable Gains in Literacy… . . . . . . . . . . . . . . . . . .22 Figure 34 ...and Life Expectancy… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 Figure 35 …while also Achieving Relatively Low Unemployment Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Figure 36 High Oil Prices in the Past… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 iv GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY Figure 37 …have Allowed Large Public Sectors Across the GCC Even when Oil Prices Slumped… 23 Figure 38 …resulting in Continuous Budget Deficits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Figure 39 Debt Has Been Rising Since the Oil Shock of 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 Figure 40  Deficits are Driven by High and Rigid Spending on Wages… . . . . . . . . . . . . . . . . . . . . . . . . . .24 Figure 41 …which are Mostly Higher than OECD Averages, Except for Qatar and the UAE . . . . . . . . . 24 Figure 42 & 43 In Kuwait, Public Sector Staff Numbers are in-Line with Global Benchmarks, but Salaries are High, Leading to an Outsized Wage Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Figure 44 Higher Public Spending Has Not Resulted in Improved Government Effectiveness… . . . . . 25 Figure 45 Despite High Spending on Education Outcomes Remain Poor . . . . . . . . . . . . . . . . . . . . . . . . 26 Figure 46 Despite Some Progress Public Employment Remains above 70% on average . . . . . . . . . . .26 Figure 47 Tackling Wage Bill Reform in the GCC Will Require a Multi-Pronged Approach . . . . . . . . . .27 List of Tables Table 1 GDP Growth, Current Account, and Fiscal Balance Forecasts . . . . . . . . . . . . . . . . . . . . . . . . .16 List of Boxes Box 1 Tracking Recent Structural Reforms (2020–21) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Table of Contents v ACRONYMS AD DED Abu Dhabi Department of Economic NIF National Infrastructure Fund Development OECD Organization for Economic CPI Consumer Price Index Co-operation and Development FDI Foreign Direct Investment OPEC Organization of the Petroleum GCC Gulf Cooperation Council Exporting Countries GDP Gross Domestic Product PMI Purchasing Managers’ Index GRE Government-Related Entity VAT Value-Added Tax MENA Middle East and North Africa vii ACKNOWLEDGEMENTS T his report is the product of the Middle East authors are grateful to Jaime de Pinies Bianchi (Senior and North Africa unit in the Macroeconomics, Economist, EMNMT) and Ashwaq Maseeh (Research Trade, and Investment (MTI) Global Practice Analyst, EMNMT) from the GCC team for their inputs. at the World Bank Group. This issue of the report Special thanks to Ekaterina Georgieva Stefanova was prepared by Sahar Sajjad Hussain (Senior (Senior Program Assistant, EMNMT) EMNMT) for Economist, EMNMT) and Khaled Alhmoud (Senior administrative support. Economist, EMNMT) with contributions from Xinyue The report was prepared under the direction of Wang (Consultant) under the guidance of Eric Issam Abousleiman (Regional Director, GCC). Le Borgne (Practice Manager, EMNMT). The Special Translation Services by Global Corporate Focus chapter was written by Ismail Radwan (Lead Solutions - Translation and Interpretation (GCSTI). Country Economist) with contributions from Izzah Shahd Alhamdan, Alya S I S Alaskari, and Malik (Public Sector Specialist) and Venkatesh Ashraf Al-Saeed managed cover photography, media Sundararaman (Lead Economist, HMNED). The relations, and dissemination. ix From the Regional Director, GCC Countries Middle East and North Africa Region, World Bank Group ISSAM ABOUSLEIMAN FOREWORD T he economic outlook for the GCC economies its pre-pandemic target of attracting more than 10 appears far rosier now than it did even 6 million visitors but it has nonetheless gotten off to an months ago. As the world emerges from the excellent start and hotel occupancy is up from 54% in pandemic, GCC countries are growing once again. 2020 to 62% in Q3 2021. Qatar’s hosting of the world GDP has gone from a decrease of 4.9% in 2020 to cup in 2022 is likely to maintain interest and traveler an increase of 2.6% in 2021 on the back of higher oil numbers to the region, as is the resumption of the prices which have more than doubled since October Hajj without restrictions in Saudi Arabia. 2020, from $38 pbl to $83 pbl in October 2021. With oil prices at 7-year highs GCC countries Increased investment and consumption both public now have an opportunity to restore fiscal balances and private are contributing to growth while inflation and buffers that were depleted during the pandemic. remains subdued in most economies except for Saudi The combined fiscal deficit went from 3.8% of GDP to Arabia where it is currently at 5.5% and expected to 11.7% in 2020. It is now forecast to be halved in 2021. fall sharply as the impact of last year’s VAT hike falls Despite this rosy picture, there remain risks away. on the horizon and there are few reasons for com- This bounce back is based on excellent mac- placency. Instead, the authorities should continue roeconomic and pandemic management measures to follow the path of prudent macroeconomic implemented in 2020 and 2021. GCC countries put management consolidating their fiscal balances, in place a myriad of support measures for businesses moving ahead with the introduction of VAT in Qatar and employees during the worst of the pandemic and Kuwait and focusing on reducing the role of the and were among the first in the world to vaccinate state in economic management. UAE’s government their populations with UAE leading the world with related entities especially those in the construction more than 85% fully vaccinated and some vulnerable sector deserve a careful review to ensure that their groups even receiving a third booster shot. borrowing remains sustainable and to adjust to the Overall the non-hydrocarbon economy is new conditions. projected to outperform the oil economy in 2021. We end this Gulf Economic Update with a Tourism is bouncing back rapidly as restrictions on special section focused on the GCC wage bill an travel are being eased both in the GCC and around important part of the existing social contract whereby the world, providing a boost particularly to Oman, GCC governments have provided free health care, UAE and Bahrain. The Dubai Expo is unlikely to meet education, social security benefits, and subsidized xi housing and utilities to their citizens. In addition, the private sector. The section highlights the need to citizens have been quasi-guaranteed well-paid public rein in civil service growth and salary inflation to put sector jobs. This model worked well while oil prices the wage bill on a sustainable footing within a new were high and local populations limited. However, as economic model based on private sector growth and oil prices slumped, populations grew rapidly and the development. We hope that this section will provide an wage bill has become both an important contributor impetus to GCC countries to start an action-oriented to fiscal deficits but also a drag on potential growth of dialogue to address this pressing concern. xii GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY EXECUTIVE SUMMARY R ecent developments: Coronavirus infections consumer confidence and investment. The extent to in the Gulf Cooperation Council (GCC) are which this sudden bullishness is sustained is, how- declining, and with rapid vaccine rollouts ever, highly uncertain as several temporary factors many have made significant progress towards full linked to the covid pandemic, along with a transition inoculation. This made it possible for authorities to to green economic growth have currently led to a relax restrictions leading to a return of tourism and a surge in hydrocarbon demand. How quickly will the rebound in domestic demand. Aggregate GDP growth covid-related disruptions, e.g., to supply chains, and for the GCC states is estimated at 2.6 percent in imbalances created by the acceleration to a greener 2021, a robust recovery due to stronger hydrocarbon development path resolve will have a material impact and non-hydrocarbon sectors. The magnitude of the on hydrocarbon demand and prices. Over the longer rebound, however, is relatively muted compared to term, prospects for the sector are bleak; economic other parts of the world. This can be attributed to diversification is needed. the continuing economic scars from the pandemic Diversification of the economy: The GCC in H1–2021, deep decline in oil prices witnessed countries are expected to continue their efforts to in 2020, and the high reliance of GCC economies diversify their economies but most are still heavily on the hydrocarbon sector. In 2022, growth dependent on oil and remain vulnerable to fluctua- should accelerate further as OPEC+-mandated oil tions in the global oil market. Oil exports remain over productions cut are phased out, and higher oil prices 70 percent of total goods exports in Kuwait, Qatar, improve business sentiment and attract investment. Saudi Arabia, and Oman, while oil revenues exceed More favorable oil market conditions have shrunk 70 percent of total government revenues in Kuwait, fiscal and external imbalances as energy prices and Qatar, Oman, and Bahrain. National Vision strategies export earnings recover. articulate credible paths of policy and structural Outlook and risks: The GCC region is on reforms that should lead to more diversified and the road to recovery in the medium term with the sustainable economies in the long run. The long-run outlook subject to risks from a slower global recovery, economic prospects in the GCC continue to hinge on renewed coronavirus outbreaks and oil sector vola- the authorities’ efforts to create a dynamic, inclusive, tility. The region’s recovery will be aided by a recent non-hydrocarbon private sector. This requires, among bullish turn in energy markets which will ease fiscal other, to diversify government revenue, enhance pressures for the GCC countries and help to spur human capital and create a favorable business xiii environment by improving economic governance and historical social contract and development model, create jobs in the private sector. GCC governments have provided free health care, Special Focus: The Wage Bill as a Reform education, social security benefits, and subsidized Instrument in the GCC. Part of the diversification housing and utilities to their citizens. In addition, strategy of GCC countries, and the focus on non- citizens have been quasi-guaranteed well-paid public hydrocarbon private sector growth and jobs, has to sector jobs. Considering the new development include, by definition, a smaller share of economic Visions, reforms to reign in the civil service and activity devoted to the public sector; these are put the wage bill back on a sustainable footing are currently large in all GCC countries. As part of the urgently required. Key Take Away Charts: Recent trends in the GCC economies THE GCC ECONOMIES ARE EXPECTED TO START …DRIVEN BY POSITIVE DEVELOPMENTS IN BOTH RECOVERING FROM THE PANDEMIC IN 2021… THE OIL AND NON-OIL SECTORS… 110 10 Real GDP (2019Q4 = 100) 5 100 0 –5 90 –10 –15 80 –20 Q4-2019 Q1-2020 Q2-2020 Q3-2020 Q4-2020 Q1-2021 Q2-2021 Q3-2021 2020 2021e 2020 2021e 2020 2021e 2020 2021e 2020 2021e 2020 2021e Saudi UAE Qatar Kuwait Oman Bahrain Saudi Arabia UAE-Dubai Qatar Arabia Kuwait Bahrain Oil Non-oil GDP growth Sources: World Bank Macroeconomics, Trade, and Investment Global Practice. Sources: World Bank Macroeconomics, Trade, and Investment Global Practice. …AS RESTRICTIONS ARE LIFTED, AND VACCINE FISCAL AND CURRENT ACCOUNTS ARE RECOVERING ROLLOUT IS A SUCCESS FAST, IN LINE WITH OIL PRICES. DEBT MOSTLY REMAINED STEADY AFTER A PEAK IN 2020 100 30 160 20 140 80 Share of populaiton, percent 10 120 Percent of GDP Percent of GDP 100 60 0 80 –10 60 40 –20 40 –30 20 20 –40 0 Saudi 2020 Arabia 2022 2020 2022 2020 2022 2020 2022 2020 2022 2020 2022 UAE Qatar Kuwait Oman Bahrain 0 Saudi UAE Qatar Kuwait Oman Bahrain Arabia At least one dose Fully vaccinated Fiscal Balance (lhs) Current Account (lhs) Gross Debt (rhs) Sources: World Bank Macroeconomics, Trade, and Investment Global Practice. Sources: World Bank Macroeconomics, Trade, and Investment Global Practice. xiv GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY HOWEVER, THE GCC RECOVERY IS SLOWER THAN …AND DIVERSIFICATION EFFORTS NEED TO GAIN ITS PEERS… STEAM 115 100% 110 80% Real GDP (2019=100) 105 60% Percent 100 40% 95 20% 90 2019 2020 2021e 2022 2023 0% Saudi UAE Qatar Kuwait Oman Bahrain Arabia Emerging market and developing economies High-income countries Hydrocarbon revenues, 2019 (share of total revenues) Commodity-exporting EMDEs Hydrocarbon exports and related products, 2019 GCC (share of total exports) Sources: World Bank Macroeconomics, Trade, and Investment Global Practice. Sources: World Bank Macroeconomics, Trade, and Investment Global Practice. Executive Summary xv ‫ملخص ٍ‬ ‫واف‬ ‫اخرضارا‪ ،‬حجم التأثري املادي عىل الطلب عىل الهيدروكربونات وأسعارها‪.‬‬ ‫ويف األجل األطول‪ ،‬تبدو آفاق املستقبل للقطاع قامتة‪ ،‬ويلزم العمل لتنويع‬ ‫النشاط االقتصادي‪.‬‬ ‫حدث املستجدات‪ :‬تشهد دول مجلس التعاون الخليجي تراجع حاالت‬ ‫اإلصابة بفريوس كورونا‪ ،‬ومع تسارع وترية حمالت التطعيم حقَّق الكثري‬ ‫منها تقدماً كبريا نحو مستوى التحصني الكامل‪ .‬وجعل هذا من املمكن‬ ‫أ‬ ‫تنويع النشاط االقتصادي‪ :‬من املتوقع أن تواصل دول مجلس‬ ‫أن تخفِّف السلطات القيود‪ ،‬األمر الذي أدَّى إىل عودة السياحة وانتعاش‬ ‫التعاون الخليجي جهودها لتنويع اقتصاداتها لكن معظمها مازال يعتمد‬ ‫در أن معدل منو إجاميل الناتج املحيل يف دول مجلس‬ ‫الطلب املحيل‪ .‬ويُق َّ‬ ‫رضاً ملخاطر تقلُّب سوق النفط العاملية‪ .‬وال‬ ‫اعتامدا كبريا عىل النفط‪ ،‬و ُ‬ ‫مع َّ‬ ‫ً‬ ‫التعاون الخليجي مجتمعة بلغ ‪ 2.6%‬يف ‪ ،2021‬وهو تعاف قوي بفضل‬ ‫تزال صادرات النفط تساهم بأكرث من ‪ 70%‬من‪ ‬إجاميل الصادرات السلعية‬ ‫تحسن القطاعات الهيدروكربونية وغري الهيدروكربونية‪ .‬ولكن حجم‬ ‫عامن‪ ،‬وتزيد مساهمة العائدات النفطية‬ ‫يف الكويت وقطر والسعودية و ُ‬ ‫زى هذا‬ ‫التعايف منخفض نسبياً إذا ما قورن مبناطق أخرى من العامل‪ .‬ويُع َ‬ ‫عامن‬ ‫عىل ‪ 70%‬من إجاميل اإليرادات الحكومية يف الكويت وقطر و ُ‬ ‫إىل استمرار األرضار والتداعيات االقتصادية للجائحة يف النصف األول لعام‬ ‫والبحرين‪ .‬وترسم إسرتاتيجيات الرؤية الوطنية مسارات تتسم باملصداقية‬ ‫‪ ،2021‬والرتاجع الشديد ألسعار النفط يف ‪ ،2020‬واالعتامد الكبري القتصادات‬ ‫إلصالحات السياسات واألُطُر الهيكلية قد تؤدي إىل اقتصادات أكرث تنوعا‬ ‫مجلس التعاون عىل قطاع الهيدروكربونات (النفط والغاز)‪ .‬ويف عام ‪،2022‬‬ ‫واستدامة يف األمد الطويل‪ .‬ومازالت آفاق املستقبل االقتصادي لدول‬ ‫من املتوقع أن تتسارع وترية النمو مع انقضاء تخفيضات اإلنتاج النفطي‬ ‫مجلس التعاون الخليجي يف األمد الطويل تتوقف عىل جهود السلطات‬ ‫التي فرضتها منظمة أوبك واملنتجون من خارجها‪ ،‬وارتفاع أسعار النفط‬ ‫لتهيئة قطاع خاص غري هيدروكربوين مفعم بالحيوية ويتسم بالشمول‪.‬‬ ‫الذي يُؤدي إىل تحسن ثقة املستثمرين واجتذاب االستثامرات‪ .‬ومع ُّ‬ ‫تحسن‬ ‫ويتطلَّب هذا جملة أمور منها‪ :‬تنويع مصادر اإليرادات الحكومية‪ ،‬وتعزيز‬ ‫ظروف سوق النفط تتقلص اختالالت املالية العامة وموازين املعامالت‬ ‫رأس املال البرشي‪ ،‬وتهيئة بيئة أعامل مواتية وذلك بتحسني مستويات‬ ‫الخارجية‪ ،‬مع انتعاش أسعار الطاقة وعائدات الصادرات‪.‬‬ ‫الحوكمة االقتصادية وإتاحة فرص العمل يف القطاع الخاص‪.‬‬ ‫اآلفاق املستقبلية واملخاطر املحيطة بها‪ :‬تتجه منطقة مجلس‬ ‫تركيز خاص‪ :‬إصالح فاتورة األجور يف مجلس التعاون الخليجي‬ ‫التعاون الخليجي نحو التعايف يف األمد املتوسط‪ ،‬ولكن تشوب آفاق‬ ‫بحكم التعريف‪ ،‬يجب أن يشتمل جزء من إسرتاتيجية دول مجلس التعاون‬ ‫وتفش موجات جديدة‬ ‫املستقبل مخاطر احتامل تباطؤ التعايف العاملي‪ِّ ،‬‬ ‫الخليجي للتنويع‪ ،‬والرتكيز عىل النمو والوظائف يف القطاع الخاص غري‬ ‫لفريوس كورونا‪ ،‬وعودة تقلبات قطاع النفط‪ .‬وسيَلقى تعايف املنطقة‬ ‫الهيدروكربوين عىل خفض نسبة النشاط االقتصادي املخصص للقطاع العام‪،‬‬ ‫دعام من موجة الصعود التي شهدتها أسواق الطاقة يف اآلونة األخرية‪،‬‬ ‫وهي يف الوقت الحايل كبرية يف كل دول املجلس‪ .‬ويف إطار العقد االجتامعي‬ ‫وستؤدي إىل تخفيف الضغوط عىل املالية العامة يف دول مجلس التعاون‬ ‫التاريخي ومنوذج التنمية املتبع‪ ،‬دأبت حكومات مجلس التعاون الخليجي‬ ‫وتساعد عىل تعزيز ثقة املستهلكني واالستثامر‪ .‬بيد أن درجة عالية من‬ ‫عىل تقديم الرعاية الصحية والتعليم مجانا ومزايا الضامن االجتامعي‬ ‫عدم اليقني تشوب مدى استمرار هذا الصعود املفاجئ‪ ،‬إذ إن هناك عدة‬ ‫ة عىل ذلك‪ ،‬كان الحصول‬ ‫وخدمات إسكان ومرافق مدعومة ملواطنيها‪ .‬عالو ً‬ ‫ول نحو منو اقتصادي‬ ‫عوامل مؤقتة مرتبطة بجائحة كورونا وخطوات التح ُّ‬ ‫عىل وظائف ذات أجر جيد يف القطاع العام شبه مضمون للمواطنني‪.‬‬ ‫أخرض ت ُؤدِّي يف الوقت الحايل إىل قفزة يف الطلب عىل الهيدروكربونات‪.‬‬ ‫وبالنظر إىل رؤى التنمية الجديدة فإن الحاجة ملحة إىل إصالحات للحد‬ ‫دد مدى رسعة االضطرابات املرتبطة بالجائحة لسالسل اإلمداد مثال‪،‬‬ ‫وس ُ‬ ‫يح ِّ‬ ‫من قطاع الخدمة املدنية ووضْ ع فاتورة األجور عىل أساس مستدام‪.‬‬ ‫واالختالالت الناجمة عن تسارع وترية التحول نحو مسار للتنمية أكرث‬ ‫‪xvii‬‬ ‫رسوم بيانية عن االستنتاجات الرئيسية‪ :‬االتجاهات األخرية يف اقتصادات مجلس التعاون الخليجي‬ ‫بفضل تطورات إيجابية يف القطاعات النفطية وغري النفطية‬ ‫من املتوقع أن يبدأ تعايف اقتصادات مجلس التعاون‬ ‫‪10‬‬ ‫الخليجي من‪ ‬جائحة كورونا يف ‪2021‬‬ ‫‪5‬‬ ‫‪110‬‬ ‫)‪ (100 = 2019.4‬الناتج ا ح ا ج‬ ‫‪0‬‬ ‫‪–5‬‬ ‫‪100‬‬ ‫‪–10‬‬ ‫‪–15‬‬ ‫‪90‬‬ ‫‪–20‬‬ ‫‪2020‬‬ ‫‪2021e‬‬ ‫‪2020‬‬ ‫‪2021e‬‬ ‫‪2020‬‬ ‫‪2021e‬‬ ‫‪2020‬‬ ‫‪2021e‬‬ ‫‪2020‬‬ ‫‪2021e‬‬ ‫‪2020‬‬ ‫‪2021e‬‬ ‫‪80‬‬ ‫الحقيقي‬ ‫‪Q4-2019‬‬ ‫‪Q1-2020‬‬ ‫‪Q2-2020‬‬ ‫‪Q3-2020‬‬ ‫‪Q4-2020‬‬ ‫‪Q1-2021‬‬ ‫‪Q2-2021‬‬ ‫‪Q3-2021‬‬ ‫السعودية‬ ‫ا مارات‪-‬د‬ ‫قطر‬ ‫الكويت‬ ‫ع ن‬ ‫ُ‬ ‫البحرين‬ ‫القطاع النفطي‬ ‫القطاع غ النفطي‬ ‫و الناتج ا ح ا ج‬ ‫السعودية‬ ‫ا مارات‪-‬د‬ ‫قطر‬ ‫الكويت‬ ‫البحرين‬ ‫املصادر‪ :‬البنك الدويل قطاع املامرسات العاملية لالقتصاد الكيل والتجارة‬ ‫واالستثامر‬ ‫املصادر‪ :‬البنك الدويل قطاع املامرسات العاملية لالقتصاد الكيل والتجارة‬ ‫واالستثامر‬ ‫حسابات املالية العامة والحساب الجاري تتعاىف رسيعا‬ ‫‪...‬مع رفع القيود ونجاح حمالت التطعيم‬ ‫ة تحسن أسعار النفط مستويات الديون مستقرة يف‬ ‫مساير ً‬ ‫‪100‬‬ ‫معظمها بعد ذروتها يف ‪2020‬‬ ‫‪80‬‬ ‫‪30‬‬ ‫‪160‬‬ ‫نسبة مئوية من عدد السكان‬ ‫‪20‬‬ ‫‪140‬‬ ‫نسبة من اج‬ ‫نسبة من اج‬ ‫‪60‬‬ ‫‪10‬‬ ‫‪120‬‬ ‫‪100‬‬ ‫‪0‬‬ ‫‪80‬‬ ‫‪40‬‬ ‫‪–10‬‬ ‫الناتج ا ح‬ ‫الناتج ا ح‬ ‫‪60‬‬ ‫‪–20‬‬ ‫‪40‬‬ ‫‪20‬‬ ‫‪–30‬‬ ‫‪20‬‬ ‫‪–40‬‬ ‫‪0‬‬ ‫‪0‬‬ ‫‪2020‬‬ ‫‪2022‬‬ ‫‪2020‬‬ ‫‪2022‬‬ ‫‪2020‬‬ ‫‪2022‬‬ ‫‪2020‬‬ ‫‪2022‬‬ ‫‪2020‬‬ ‫‪2022‬‬ ‫‪2020‬‬ ‫‪2022‬‬ ‫السعودية‬ ‫ا مارات‪-‬د‬ ‫قطر‬ ‫الكويت‬ ‫ع ن‬ ‫ُ‬ ‫البحرين‬ ‫الكويت‬ ‫ا مارات‪-‬د‬ ‫ع ن‬ ‫البحرين‬ ‫قطر‬ ‫السعودية‬ ‫ُ‬ ‫الحاصل ع جرعة واحدة‬ ‫الحاصل ع تطعيم كامل‬ ‫رصيد ا الية العامة‬ ‫)الجانب ا ي (ر‬ ‫الحساب الجاري‬ ‫)الجانب ا ي (‬ ‫اج الدين‬ ‫)الجانب ا ن(‬ ‫املصادر‪ :‬البنك الدويل قطاع املامرسات العاملية لالقتصاد الكيل والتجارة‬ ‫واالستثامر‬ ‫املصادر‪ :‬البنك الدويل قطاع املامرسات العاملية لالقتصاد الكيل والتجارة‬ ‫واالستثامر‬ ‫‪xviii‬‬ ‫‪GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY‬‬ ‫ويجب أن تتسارع وترية جهود تنويع النشاط االقتصادي‬ ‫بيد أن التعايف يف مجلس التعاون أبطأ من مثيله يف‬ ‫‪100%‬‬ ‫مجموعة البلدان النظرية‬ ‫‪115‬‬ ‫)‪ (100 = 2019.4‬الناتج ا ح ا ج‬ ‫‪80%‬‬ ‫‪110‬‬ ‫‪60%‬‬ ‫نسبة‬ ‫‪105‬‬ ‫‪40%‬‬ ‫‪100‬‬ ‫‪20%‬‬ ‫‪95‬‬ ‫‪0%‬‬ ‫الحقيقي‬ ‫السعودية‬ ‫ا مارات‪-‬د‬ ‫قطر‬ ‫الكويت‬ ‫ع ن‬ ‫ُ‬ ‫البحرين‬ ‫‪90‬‬ ‫‪2019‬‬ ‫‪2020‬‬ ‫‪2021e‬‬ ‫‪2022‬‬ ‫‪2023‬‬ ‫ا يرادات(ت‬ ‫ا يرادات الهيدروكربونية‪) 2019 ،‬نسبة من اج‬ ‫اقتصادات ا سواق الصاعدة والنامية‬ ‫الصادرات(ت‬ ‫الصادرات الهيدروكربونية‪) 2019 ،‬نسبة من اج‬ ‫الدول مرتفعة الدخل‬ ‫اقتصادات ا سواق الصاعدة والنامية ا صدرة للسلع ا ولية‬ ‫مجلس التعاون الخليجي‬ ‫املصادر‪ :‬البنك الدويل قطاع املامرسات العاملية لالقتصاد الكيل والتجارة‬ ‫واالستثامر‬ ‫املصادر‪ :‬البنك الدويل قطاع املامرسات العاملية لالقتصاد الكيل والتجارة‬ ‫واالستثامر‬ ‫ملخص ٍ‬ ‫واف‬ ‫‪xix‬‬ 1 RECENT ECONOMIC DEVELOPMENTS1 Following a surge in the summer, coronavirus Rapid vaccine rollout, easing of restrictions and infections in the GCC are now declining, and with positive developments in the hydrocarbon mar- rapid vaccine rollouts many countries have made ket continue to drive strong recoveries in 2021 significant progress towards full inoculation. across the GCC. COVID-19 infections are declining across the Gulf High frequency indicators and preliminary official Cooperation Council (GCC) states after a surge in data are showing signs of a robust recovery in cases in July resulting from the spread of the Delta 2021 across the GCC. The main contributors to variant (Figure 1a). In response, social distancing and gross domestic product (GDP) growth in 2021 are travel restrictions are being lifted. Saudi Arabia has private consumption, as social distancing restrictions now opened its doors to pilgrims at full capacity and are relaxed across the region, and fixed investment, lifted social distancing and masking requirements for as higher oil prices made it possible for loose fiscal vaccinated individuals. Kuwait lifted most restrictions policy in half of the GCC (except in Saudi Arabia, with the airport operating at full capacity from October Oman and Bahrain where spending went down)— 24th, 2021 and large gatherings including conferences Figure 2. The COVID-19 Stringency Index has and weddings are now permitted providing attendees declined (Figure 3) and Google’s mobility data is are vaccinated. On the other hand, while travel reflecting rising activity as containment measures are restrictions have eased, authorities in the rest of the GCC eased. Most recent quarterly data shows that Bahrain are more cautious and have maintained mandates such and Dubai2 have returned to pre-pandemic growth as the use of protective face coverings and compliance with social distancing guidelines in public settings. 1 The data cut-off for the economic estimates and projections Meanwhile, vaccination rollout is making significant in this report is September 30, 2021. Any data published progress with fully inoculated individuals reaching 61.8 after that date will be reported in the next edition. percent of the total GCC population (Figure 1b). 2 Quarterly data for the whole of UAE is not available. 1 FIGURE 1A • COVID-19 Infections are Declining FIGURE 1B • Covid-19 Vaccination Rollout Has Been Successful Daily new confirmed COVID-19 cases Shown is the rolling 7-day average. The number of confirmed cases is 100 lower than the number of actual cases; the main reason for that is limited testing. 80 Share of population, percent 4,000 3,000 60 2,000 40 1,000 20 0 Mar. 1, Aug. 8, Nov. 16, Jun. 4, Oct. 26, 2020 2020 2020 2021 2021 0 Saudi UAE Qatar Kuwait Oman Bahrain Arabia Qatar United Arab Emirates Bahrain Saudi Arabia Kuwait Oman At least one dose Fully vaccinated Source: Johns Hopkins University CSSE COVID-19 Data from Our World in Data. Source: https://ourworldindata.org/covid-vaccinations. FIGURE 2 • Private Consumption and Fixed FIGURE 3 • Covid-19 Restrictions are Being Investment are Driving the Recovery Relaxed 6.0 COVID-19 Stringency Index The stringency index is a composite measure based on nine response indicators including school closures, workplace closures, and travel 4.0 bans, rescaled to a value from 0 to 100 (100 = strictest). If policies vary at the subnationa level, the index shows the response level of the Contribution to GDP, percent strictest subregion. 2.0 100 0 80 60 (2.0) 40 (4.0) 20 (6.0) 0 2019 2020 2021 2022 2023 Jan. 22, Aug. 8, Feb. 24, Oct. 24, 2020 2020 2021 2021 GCC, Private Consumption GCC, Govt. Consumption GCC, Fixed Investment GCC, Net Exports Qatar United Arab Emirates Bahrain GCC, Real GDP Growth Saudi Arabia Kuwait Oman Source: MFMoD. Source: Oxford COVID-19 Government Response Tracker. Last updated 25 October 2021. in Q2–2021 (Figure 4). These coupled with a rising recovery, however, the magnitude of the rebound Purchasing Manager’s Index (PMI) indicate a strong is smaller than in other parts of the world (Figures rebound in 2021—with headline PMI reporting strong 6–7). The GCC economies contracted by 4.9 percent expansionary values (above 50) since the second half in 2020 as a result of the compound shock of the of 2021 (Figure 5). spread of COVID-19 and countermeasures, and the Aggregate GDP growth for the GCC states decline in global oil prices. Overall, the output cost is estimated at 2.6 percent in 2021, a robust of COVID-19 in the GCC is estimated at almost $120 2 GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY Bahrain and Dubaia have Returned to FIGURE 4 •  Purchasing Managers Index (PMI) is on FIGURE 5 •  pre-Pandemic Growth in Q2–2021 the Rise 110 70 Real GDP (2019Q4=100) 60 Below 50 = contraction Above 50 = expansion; 100 50 90 40 80 30 Q4-2019 Q1-2020 Q2-2020 Q3-2020 Q4-2020 Q1-2021 Q2-2021 Q3-2021 20 Jan/20 Mar/20 May/20 Jul/20 Sep/20 Nov/20 Jan/21 Mar/21 May/21 Jul/21 Sep/21 Saudi Arabia UAE-Dubai Qatar Kuwait Bahrain Saudi Arabia UAE-Dubai Qatar Source: Haver Analytics. Source: IHS Markit Purchasing Managers Survey. a Quarterly data for the whole of UAE is not available. FIGURE 6 • The GCC Contraction in 2020 Was FIGURE 7 • The GCC Recovery is Robust, but Similar to Advanced Economies it is Expected to Be Slower than Comparators 6.4 6 5.3 5.1 1.04 4 3.7 2.6 1.02 Real GDP (2019 = 1) Y/Y growth, percent 1.6 1.9 2 1.1 1.00 0 0.98 –2 –2.1 0.96 –4 0.94 –4.9 –5.9 –4.9 2019 2020 2021e –6 Major European Emerging market GCC advanced Union and developing Emerging market and developing economies economies (G7) economies High-income countries Commodity-exporting EMDEs 2019 2020 2021e Commodity-exporting EMDEs Source: International Monetary Fund, World Economic Outlook Database, October 2021. Source: GEP, June 2021. billion, a number estimated by comparing the region’s economic scars from the pandemic in H1–2021, forecast GDP level in 2020 with a scenario where deep decline in oil prices witnessed in 2020, there was not any COVID.3 This corresponds to a loss and the high reliance of GCC economies on the in growth of 7.3 percent relative to our projections in hydrocarbon sector. The rebound in the first half of 2019. Nevertheless, the rapid roll-out of COVID-19 2021 was muted because of oil production quotas vaccines coupled with a recovery in global trade, rising oil production and higher oil prices have led to the upward adjustment in the real GDP projections. 3 MENA Economic Update: Overconfident: How Economic The GCC region’s lackluster rebound rela- and Health Fault Lines Left the Middle East and North tive to peers can be attributed to the continuing Africa Ill-Prepared to Face COVID. Recent Economic Developments1 3 FIGURE 8 • Both Oil and Non-Oil Sectors Will FIGURE 9 • Overall GCC Crude Oil Production Has Drive the Recovery in 2021 Increased, Led by Saudi Arabia 10 12,000 Contribution to GDP, percent 9,544 5 10,000 8,763 Thousand barrels per day 0 8,000 –5 6,000 –10 4,000 2,761 2,604 2,445 –15 2,246 1,878 1,914 –20 2,000 920 965 2020 2021e 2020 2021e 2020 2021e 2020 2021e 2020 2021e 172 186 2020 2021e 0 Saudi UAE Kuwait Qatar Oman Bahrain Saudi UAE Qatar Kuwait Oman Bahrain Arabia Arabia Oil Non-oil GDP growth Q3-2020 Q3-2021 Source: Haver Analytics and World Bank, Macro Poverty Outlook, Fall 2021. Source: OPEC Monthly Oil Market Report, US Energy Information Administration. and pandemic containment measures as covid inci- containment measures and drive non-oil growth. On dence was still high. On the other hand, H2–2021 saw the other hand, the oil sector is set to grow too but an acceleration in both oil and non-oil sectors, and at a slower pace as OPEC+ production quotas are the recent increase in oil prices leads to an upside phased out gradually by April 2022. Saudi Arabia potential. The gradual uptick in recovery reflects the has navigated extraordinary volatility in the oil market, continuing economic scars from the pandemic, deep using the OPEC+ structure and its own carefully decline in oil prices witnessed in 2020, and the high calibrated production adjustments to keep supply reliance of GCC economies on the hydrocarbon in line with the gradual global relaxation of contain- sector. The lack of diversification in most of the GCC ment measures. Nevertheless, oil prices are now at economies in addition to the non-oil sector’s depen- a level where unconventional supply will be induced dence on tourism (a sector severely hit by the twin back into the market. Against this background, the crises) in the more diversified countries like Bahrain, economy expanded by 1.8 percent in Q2–2021 the UAE and Oman, may explain the divergence in the (compared to –7 percent in Q2–2020) supported by pace of recovery. stronger private sector growth. Both oil and non-oil sectors drove the In the UAE economic recovery is driven by rebound in economic growth in 2021. Overall non- driven by the successful vaccination program, resump- oil growth in the GCC is estimated at 3.9 percent and tion of travel, relaxation of lockdowns, and large-scale oil GDP growth at –0.2 percent (up from –3.0 percent monetary and fiscal measures. This is evident from and –7.2 percent in 2020 respectively). Overall GCC various indicators: the PMI in Q3–2021 has been on crude oil production has increased, led by Saudi average the highest since 2019 reflecting improved Arabia, in line with the OPEC+ agreement to phase business sentiment; tourism and hospitality data in out production cuts by September 2022 (Figure 8). In Dubai show a recovery in hotel occupancy to 62 per- Q3–2021 Saudi Arabia increased production by 3.9 cent, up from 54 percent recorded in 2020; however, percent relative to 2020 to reach 9.5 mbd, almost at still shy from pre-pandemic levels; and employment its pre-pandemic production level (Figure 9). The UAE increased in Q34 likely supporting domestic demand. and Kuwait increased production in Q3–2021 relative Early indicators suggest a timid economic to Q2–2021 by 4.4 and 3.8 percent respectively. recovery in Qatar; the economy grew 4.0 percent Non-oil sectors are projected to outperform oil sectors in 2021 across the GCC. The successful vaccination drives have allowed authorities to relax 4 According to PMI readings. 4 GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY year-on-year in Q2, rebounding from the first quarter’s FIGURE 10 • Recovery in Domestic Demand 2.5 percent contraction, albeit due to a low base and Global Commodity Prices Has Spurred Inflationary Pressures effect. Mobility as measured via Google data, has in 2021 returned to pre-pandemic levels and Purchasing Manager’s Index (PMI) readings in 2021 have 5 remained above 50, indicating expansion. The resolu- 4 Inflaiton rate, percent 3 tion of the diplomatic rift with Qatar’s neighbors in 2 addition to higher oil prices could potentially attract 1 regional buyers to support Qatar’s ailing real estate 0 market. In Kuwait early non-oil recovery is driven –1 –2 by a rebound of domestic consumption supported –3 by renewed debt payment deferrals, and higher 2018 2019 2020 2021 2022 2023 consumer loans. Oman’s economy is gradually Qatar United Arab Emirates Bahrain emerging from last year’s contraction as key sectors Saudi Arabia Kuwait Oman such as energy, tourism, and manufacturing rebound in line with higher production and global demand. Source: Haver Analytics and World Bank, Macro Poverty Outlook, Fall 2021. Economic growth returned in Q2–2021 in Bahrain after a contraction in Q1–21, mainly due to a low base effect. The non-oil sector led the recovery (7.8 percent merchandise imports in Kuwait, the highest across in Q2,), specifically the transportation and hospitality the GCC, followed by Saudi Arabia (13.7 percent). sectors. However, the oil sector continued to weigh The pandemic-induced recession prompted central on overall growth, declining 2.4 percent in Q2–2021. banks across the region to cut policy interest rates With the increase in oil prices witnessed in H2 2021 tracking the Fed’s movements. this is likely to be reversed by the end of the year. Price pressures began to build at the start of 2021, as the regional recovery gained traction Inflationary pressure is rising as supply bottle- alongside a robust rebound in demand. Ongoing necks drive up global prices and as aggregate supply constraints also contributed to the rise in demand improves, reversing the trend of nega- headline and core inflation. Inflation in Saudi Arabia tive CPI growth (deflation) in most GCC states averaged 5.5 percent during H1 2021 and is expected to fall sharply in the remainder of this year as the effects The global collapse in demand and subsequent of last year’s VAT hike fall out of the annual price com- plunge in oil prices from the pandemic exerted parison. On the other hand, the rest of the GCC states downward pressure on global inflation throughout are expected to see higher prices in 2021. In Kuwait most of 2020 (World Bank 2021a; Ha et al. 2021). increased inflation is mainly due to pent up demand, Regional inflation in the GCC also fell in 2020, as the continued supply chain disruptions and higher interna- large negative demand shock from COVID-19 more tional food prices (Figure 11). Research shows that in than offset pandemic-related supply shocks that Kuwait higher inflation in trading partners’ (China, UAE, increased inflation, including lockdowns and mobility Saudi Arabia and Germany are Kuwait’s top import restrictions. These trends and drivers, however, varied partners) is the main driving force for inflation in the across the region in 2020. In the UAE, Qatar, Oman, long run and demand and money supply shocks affect and Bahrain, inflation collapsed alongside demand— inflation in the short run (IMF, 2008). Inflation in Oman in tandem with global trends. In contrast Saudi Arabia and Bahrain is expected to return to positive territory and Kuwait saw rising inflation in 2020. This was due due to the introduction of the VAT in Oman last April to the climb in international food prices resulting from and rebound in domestic demand in Bahrain. In the supply-side disruptions brought on by the pandemic, in addition to the tripling of the VAT in Saudi Arabia (Figure 10)—food constitutes 16.5 percent5 of 5 Latest available data from 2019. Recent Economic Developments1 5 FIGURE 11 • Energy Prices Surged in 2021 Fiscal deficits across the GCC are estimated to Which has Increased Agricultural shrink in 2021 as hydrocarbon market condi- Input Costs tions recover 120 110 Overall GCC fiscal balances went from a deficit of Price Indices (2010=100) 100 3.8 percent of combined group GDP in 2019 to a 90 deficit of 11.7 percent in 2020, which is set to be 80 70 cut in half in 2021 as hydrocarbon revenues recover 60 in line with higher oil prices and as global demand 50 recovers from the pandemic-induced recession. 40 Combined GCC central governments revenues are 2018 2019 2020 2021 2022 expected to grow by 21 percent during 2020–2021 Energy Agriculture (Figure 12); meanwhile, tougher fiscal discipline Food Metals and Minerals measures adopted by several countries would keep a Source: World Bank Commodity Markets Outlook, October 2021. cap on expenditures which are projected to grow by only 0.7 percent during the same period (Figure 13).6 As a result, cumulative GCC fiscal deficit is anticipated UAE inflation is expected to continue its negative trend to halve in 2021 reducing the financing needs and the since 2019, albeit reduced, driven by lower prices for buildup of debt (Figure 14-15). rents and energy compounded by the departure of All GCC states are to see higher revenues expatriates (total population shrank by 2.3 percent in in 2021, leading to higher spending in some 2020). However, real estate prices that were depressed countries. However, fiscal sustainability concerns prior to 2020 due to oversupply of residential proper- have led Saudi Arabia, Bahrain, and Oman to rein ties, are now showing an uptick in Abu Dhabi while in Dubai they continued to decline on average by 5.5 per- 6 Figures 12–13 show revenues and expenditure as a cent y/y. Consumer price deflation in Qatar which was percent of GDP. In some cases while we see revenues apparent since the outbreak of the pandemic reversed and/or expenditures increasing in 2021 in value terms, in the second quarter of 2021 with the annualized rate these might be decreasing in terms of GDP due to the of inflation reaching 3.1 percent in July. higher rate of change of GDP in 2021. FIGURE 12 • The Surge in Oil Prices Will Raise FIGURE 13 • …prompting Higher Spending by Revenues… Some GCC States, While Fiscal Sustainability Concerns Will Reduce Spending in Others Kuwait Oman Kuwait Saudi Arabia Oman Saudi Arabia Bahrain Bahrain Qatar Qatar UAE UAE 0 15 30 45 0 15 30 45 60 Percent of GDP Percent of GDP Revenues, 2020 Revenues, 2021 Expenditures, 2020 Expenditures, 2021 Source: World Bank Commodity Markets Outlook, October 2021. Source: World Bank Commodity Markets Outlook, October 2021. 6 GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY FIGURE 14 • Fiscal Deficits are to Shrink as Oil FIGURE 15 • After a Surge in 2020 to Finance Market Conditions Recover Large Deficits, GCC Debt is to Stabilize in 2021 0 150 –5 –20 120 Debt stock, percent of GDP Percent of GDP –25 90 –20 60 –25 –30 30 –35 Kuwait Bahrain Oman Saudi UAE Qatar 0 Kuwait Bahrain Oman Saudi UAE Qatar Arabia Arabia Fiscal deficit, 2020 Fiscal deficit, 2021e 2019 2020 2021e Source: Haver Analytics, World Bank, Macro Poverty Outlook, Fall 2021, and IMF WEO, Source: Haver Analytics, World Bank, Macro Poverty Outlook, Fall 2021, and IMF WEO, October 2021. October 2021. in spending (Figures 12–13). Saudi Arabia’s in hydrocarbon prices. Offsetting expenditures to budget deficit narrowed during H1 2021 (SAR 12 mitigate the economic effects of COVID-19 amongst billion) compared to the same period last year (SAR hardest hit sectors (travel, tourism and real estate) 143 billion). Higher oil revenues and stronger fiscal are expected to continue in the coming quarters. The adjustments (VAT increase, Cost of Living Adjustment introduction of a VAT, which was postponed due to removal, and raising efficiency of capital spending) the pandemic, is likely to take place later this year. have contributed to a favorable fiscal position. Thus The recent normalisation of relations with its neigh- far, the use of reserves and ample market access bors will help Qatar through higher revenues from have proven sufficient to finance the deficit, and its global state-owned airline with the resumption of shield the economy from the full volatility of oil prices. travel links. The end of the rift could also revive the Fiscal outturns for the UAE federal govern- prospect of further GCC integration and regional ment in 2020 showed a deficit of 2.5 percent of GDP, crisis burden-sharing. compared with a surplus of 2.6 percent in 2019, due Kuwait’s fiscal deficit widened from 9.5 per- to reduced hydrocarbon revenue and fiscal mitigation cent of GDP in FY19/20 to 33.2 percent in FY20/21 measures. According to official data, the net oper- (the fiscal year begins in April and figures exclude ating balance fell from AED 93.4 million to AED 14.8 investment income and transfers to the Future million. The consolidated deficit at the UAE level is Generations Fund (FGF)). The parliament approved estimated to drop to 1.3 percent in 2021 from 7.1 per- an expansionary budget for FY21/22 with a narrower cent of GDP in 2020 as the rise in income outpaces deficit (24.5 percent of GDP) as oil revenues are the higher spending. Financing needs were mostly expected to increase. However, this is based on a met by international debt issuances at the emirate conservative oil price of US$45 therefore actual fiscal level, and for the first time the UAE raised US$4 billion deficit is expected to be smaller given the recent hike as a federal sovereign entity, with total public debt in oil prices. Budgeted spending is higher, driven by estimated to increase to 37 percent of GDP in 2021. 20 percent increase in capital spending in FY21/22. Qatar’s fiscal deficit in 2021 is estimated at 0.9 Financing the deficit will remain a challenge without percent of GDP, an improvement from the deficit of the approval of the new debt law that seeks to raise 3.6 percent in the previous year, owing to the recovery the borrowing limit. Recent Economic Developments1 7 Oman’s official data for the first half 2021 GDP in fiscal support measures. These include: (1) in reveals a substantial decline in budgetary revenues Saudi Arabia, the deferred tax payments from March (down 9.7 percent y/y) as oil revenues dropped by 18 to end-June 2020 were almost entirely repaid by almost 12 percent. As such, the country posted a fiscal the end of 2020. Most of the fiscal support has now deficit of 3.7 percent of GDP (y/y) versus 3.2 percent been withdrawn. The wage support program through of GDP same period last year. On the upside, the SANED has been extended, but only to the sectors Dubai Mercantile Exchange (DME) Oman crude oil that are still being affected by COVID. Saudi’s Central price hit the highest level in roughly three years in late Bank SAMA’s Loan Guarantee Program ended at September 2021, which will support public coffers. the end of December 2020. The Deferred Payments Moreover, ongoing fiscal reforms to diversify revenue Program has been extended, while the Guaranteed sources along with the VAT introduction, led to 31 Facility Program has been extended until March 14, percent (y/y) increase in non-oil revenues. Going 2022; (2) in the UAE the central bank extended some forward, oil market recovery and fiscal restraints are pandemic support measures, until 30 June 2022, projected to improve Oman’s public finances, with the including the collateralized AED50bn Zero Cost public debt-to-GDP ratio expected to decline by over Facility; (3) in Bahrain, in June 2021, the government 10 percentage points in 2021. extended its support program for businesses Official figures for the first half 2021 indicate impacted negatively by the coronavirus pandemic that Bahrain’s revenues increased by 23 percent by 3 months; (4) in Oman, the Authority for Small (y/y) primarily due to 33 percent increase in oil rev- and Medium Enterprises Development extended the enues. Other gains are related to non-oil revenues postponement of the installments of SMEs payable in which increased by 4 percent mainly on the back Al Raffd Fund until the end of 2021. of the VAT proceeds introduced in 2019. This has helped the fiscal deficit to narrow to 3.7 percent of GCC states have intensified workforce national- GDP in H1–21, which may help to bring the total debt ization policies in response to the pandemic slightly down by end-2021. As a result, the central government debt is expected to slightly decline by Oman extended its Omanization regulations to 3.5 percentage points of GDP in 2021. Moreover, include roles in sales and accounting industries and authorities are planning to double the VAT to 10 per- allocated more jobs in higher education to Omani cent in a bid to boost revenues and support fiscal citizens. In July 2020 the Qatari cabinet approved a sustainability by 2024. resolution aiming to raise the percentage of Qataris working for state-owned companies to 60 percent. The GCC states relied on monetary and finan- In the UAE the authorities are stepping up efforts to cial stimulus support measures in 2020 (in com- incentivize private sector employment; in September parison with advanced economies which relied 2021, a US$6.5 billion package of benefits and more on fiscal measures), and while most of the subsidies was announced to help more Emirati support measures have been withdrawn, some citizens find private sector jobs. in Saudi Arabia, UAE, Oman and Bahrain have been extended The overall GCC current account balance is pro- jected to return to pre-pandemic levels in 2021 The sum of fiscal, monetary and macro-financial as energy prices and export earnings recover measures made in response to the economic downturn were sizable but was tilted toward monetary In tandem with severely depressed global oil prices and macro-financial support. Thus, compared with and export volumes as the pandemic hit international the almost 24 percent of GDP in fiscal mitigation that trade and supply chains overall GCC current account advanced economies have, the GCC states managed balances as a percent of group GDP went from to marshal a much more limited 0.4–6.4 percent of 7 percent to 0.9 percent in 2020 (Figure 16). As 8 GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY FIGURE 16 • GCC Current Accounts are Adjusting FIGURE 17 • Exports Track Oil Prices as Oil Dominates the Export Baskets 10 8 10 80 6 8 8 70 4 6 2 60 Y/Y growth, percent 4 Percent of GDP 6 Y/Y growth, percent 0 50 US $ per barrel 2 —2 0 40 4 —4 —2 30 —6 —4 2 20 —8 —6 10 —10 —8 0 2019 2020 2021e —10 0 2017 2018 2019 2020 2021 GCC, Current Account Balance (lhs) GCC, Exports (rhs) GCC, Imports (rhs) GCC Exports (lhs) Crude oil (rhs) Source: Macro Poverty Outlook, Fall 2021. Source: Macro Poverty Outlook, Fall 2021. energy prices and global demand recovers in 2021 q/q mainly due to a higher oil prices. Oman’s trade (Figure 17) overall GCC current account surplus is set balance has recorded a surplus of over 6 percent of to recover to 6 percent of group GDP. GDP (y/y) in the first five months 2021, up by 0.8 per- Saudi Arabia and Qatar’s current account centage points of GDP the 5M-20. This is driven by balances are estimated to return into surplus as high merchandised exports of US$2.8 billion, of which energy prices and export earnings recover. In the US$2.3 billion is related to the hydrocarbon sector. UAE and Kuwait current account surpluses shrank in This is expected to be a key factor behind the nar- 2020 due to underperformance of both hydrocarbon rowing the current account deficit by end-2021. High and non-hydrocarbon exports mitigated by lower frequency data disclose that Bahrain’s trade deficit imports. However, trade is recovering in 2021 with slightly narrowed to 1.0 percent of GDP in Q2–21, total trade in Kuwait increasing by 20 percent q/q as the value of exports increased by 75 percent (y/y) in Q12021 and oil exports increased by 34 percent driven by hydrocarbon exports revenues. Recent Economic Developments1 9 2 TRACKING DIVERSIFICATION AND STRUCTURAL REFORMS GCC economies remain dependent on hydro- is hydrocarbon-based, hydrocarbon liquidity from carbons despite efforts towards diversification neighboring countries continue to support its economy over the last couple of decades. through grants and tourism. Hydrocarbons continue to also be the main source of government revenue While indicators such as the share of non- (Figure 19). Moreover, in 2019, hydrocarbons and hydrocarbon GDP have grown since the early related products represented over 90 percent of total 2000’s, economic activity continues to be exports in Kuwait, over 80 percent of total exports in primarily driven by hydrocarbon revenues either Saudi Arabia and Qatar, and over 60 percent of total directly or indirectly. Oil and gas production exports in Oman (see Figure 20). With the exception continues to represent over 30 percent of gross of Bahrain and UAE, growth in non-hydrocarbon domestic product (GDP) in most countries, except exports has remained muted over the past 2 decades for Bahrain (14 percent), as of 2019. This represents (Figure 21). Finally, FDI is generally lagging in the GCC significant progress since the early 2000’s (Figure 18). compared to high-income countries—except for UAE However, much of the region’s economic activities and Oman where average during 2014–2019 is on including construction and infrastructure, are directly par with advanced economies (Figure 22). However, related and supported hydrocarbon revenues. elsewhere in Qatar, Kuwait and Saudi Arabia FDI Even in Bahrain where only 14 percent of GDP inflows are even lower than the MENA average. 11 Diversification in the GCC FIGURE 18 • Non-Hydrocarbon GDP Has Risen… FIGURE 19 • …but Economic Activity Continues to Be Supported by Hydrocarbon Revenues… Bahrain UAE Oman 86% (2019) 66% (2019) 66% (2019) 100% 44% (2000) 69% (2010) 33% (2000) 80% Share of total 60% 40% Saudi Arabia Qatar Kuwait 69% (2019) 64% (2019) 46% (2019) 20% 40% (2000) 43% (2000) 50% (2000) 0% Saudi UAE Kuwait Qatar Oman Bahrain Arabia Oil GDP Non-oil GDP Hydrocarbon revenues, 2012 Hydrocarbon revenues, 2019 FIGURE 20 • …and Hydrocarbon Exports Continue FIGURE 21 • …with Non-Hydrocarbon Export to Dominate GCC Trade… Growth Muted in Most GCC States 100% 30% 90% Non-oil exports, percent of GDP 80% 25% Share of total exports 70% 20% 60% 15% 50% 40% 10% 30% 5% 20% 0% 10% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 0 Bahrain UAE Oman KSA Qatar Kuwait Oil & Gas exports Oil & Gas related exports Saudi Arabia UAE Bahrain Non-hydrocarbon exports Oman Kuwait Qatar Sources and Notes: COMTRADE, Data for Oman from 2018 and KSA 2016. Source: Macro Poverty Outlook, October 2021. FIGURE 22 • Inward FDI Remains Limited… FIGURE 23 • …and Per Capita GDP Growth is Behind other Regions 5% FDI inflows, share of GDP (Av. 2014–19) 3 4% Per capita GDP growth, percent 2 3% 1 0 2% –1 1% –2 –3 0% –4 2013 2014 2015 2016 2017 2018 2019 –1% Qatar Kuwait Saudi Arabia Bahrain UAE Oman MENA High Income Middle East & North Africa OECD members GCC Average Source: WDI. Source: WDI. 12 GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY Despite the focus on managing the pandemic, the GCC states continued to implement structural reforms over the past year in areas with the potential to advance economic diversification… BOX 1. TRACKING RECENT STRUCTURAL REFORMS (2020–21) Saudi Arabia improved public investment: Saudi Arabia announced a new National Investment Strategy to help boost local and foreign investments, of which; launching a National Infrastructure Fund (NIF) targeting investments in water, transportation, energy, and health projects in the Kingdom. Furthermore, Saudi Arabia unveiled a series of initiatives and technological programs to boost the country’s position as a global technology hub and approved Private Sector Participation law intended to increase private sector participation in infrastructure projects and support public-private partnerships. The UAE continues to improve the business environment: The Abu Dhabi Department of Economic Development (AD DED) launched a virtual license that allows nonresident foreign investors to obtain a license to conduct business in the emirate. UAE ministers announce “Projects of the 50,” a series of developmental and economic projects that include new and amended visa schemes. AD DED announced a 71 percent reduction in requirements to start a new commercial business as part of efforts to reduce the time and costs associated with business setup in the emirate. The AD DED announced the release of a professional license that permits foreign professionals to establish and fully own a professional business company. The UAE made progress in public financing; the UAE issued its first federal bond as a sovereign entity. The Abu Dhabi Department of Energy launches a regulatory policy for clean energy certificates to support the transition to a more sustainable, decarbonized sector. Qatar enhanced contract enforcement: Qatar’s Shura Council approved a draft law concerning the establishment of the Investment and Trade Court to oversee legal disputes, including commercial contracts and bankruptcy disputes and enhanced investment: Qatar’s Cabinet approved a draft law to permit overseas investors to own up to 100% of listed companies. Qatar allowed foreign companies and individuals to own real estate. Qatar’s emir also issued a new public-private partnership law intended to strengthen the role of the private sector in the country’s economy. Qatar reforms the kafala system: Qatar enacted labor reforms that include a minimum monthly wage of $275 for workers and the removal of a no-objection certificate that required migrant workers to seek the permission of their employers before changing jobs. Kuwait enhanced competition: Kuwait’s Parliament approved a new law in 2020 to protect economic competition. Oman reforms to attract investment: Oman’s Ministry of Economy launched its tenth 5-year development plan (2021–25), which aims to boost investments and GDP growth and began permitting expatriate investors to apply for long-term residency visas. Oman makes progress towards clean energy use: Oman establishes a national hydrogen alliance, consisting of institutions from the public and private sectors, to develop the production, transportation, and use of clean energy. Electricity distribution and supply firms in Oman begin issuing electricity bills with new, gradually applied tariff structures. The sultan of Oman approves a Medium-Term Fiscal Balance Plan (2020–2024) to achieve fiscal sustainability, reduce debt, and diversify the economy. At the beginning of 2021 Oman announced plans to phase out water and electricity subsidies from January 2021 until 2025. Oman implemented VAT in April 2021. Bahrain’s new economic growth and fiscal balance plan: The multi-year plan is Bahrain’s largest economic reform program to enhance competitiveness and support its post-pandemic recovery. Tracking diversification and structural reforms 13 3 OUTLOOK AND RISKS The coronavirus pandemic continues to shape previously launched to provide relief and to help spur the global economic outlook and in line with economic recovery. high-income economies, the GCC countries The global outlook is clouded by uncertainty are projected to continue to recover over the and subject to various risks, however. Continued medium term spread of COVID-19 shows that repeated outbreaks are still possible, especially in light of the emergence Supported by continued rollout of vaccination of new variants that are more transmissible, deadly, programs in many countries, the global economy and resistant to vaccines. Most emerging and devel- is expected to grow at 4.3 percent in 2022 and oping countries also face formidable constraints with 3.1 percent in 2023.7 The recovery is underpinned vaccine procurement and distribution. Moreover, by steady but highly uneven global vaccination and many governments must also reckon with hesitancy, the associated gradual relaxation of pandemic- if not outright resistance, to the vaccine among seg- control measures in many countries, as well as ments of their population. rising confidence. The advanced economies, which Oil demand is expected to firm with the weakened by 4.7 percent in 2020, are forecast to global economic recovery. WBG’s most recent rebound by 5.4 in 2021 and continue to recover to oil price projections are; US$70 per barrel in 2021, 4.0 and 2.2 percent GDP growth in 2022 and 2023, US$74 in 2022, and US$65 per barrel in 2023 respectively (Figure 24). Meanwhile, aggregate (Figure 25).8 Oil demand is expected to continue emerging market and developing economies growth its recovery and reach its pre-pandemic level by is forecast to reach 6 percent in 2021 and moderate end of 2022. Oil production is expected to increase to 4.7 percent in 2022 and 4.4 percent in 2023, as as supply outages are resolved; as production the effects of the pandemic gradually wane, and responds to higher demand, particularly shale countries benefit from elevated commodity prices and improving external demand. The economic projections also assume continued monetary policy 7 Global Economic Prospects, June 2021. accommodation and diminishing fiscal support, 8 Commodity Markets Outlook, Oct. 2021. 15 FIGURE 24 • The Global Economy’s Recovery is FIGURE 25 • Energy Prices are Expected to Underpinned by Steady but Uneven Increase More than 5 Percent in Global Vaccination 2022 Before Falling Sharply in 2023 as Supply Increases 8 80 16 6 4 60 12 Y/Y growth, percent US $ per barrel US $ mmbtu 2 40 8 0 –2 20 4 –4 0 0 –6 2019 2020 2021f 2022f 2023f 2018 2019 2020e 2021f 2022f 2023f Crude oil (lhs) World Natural gas, Europe (rhs) Advanced economies Natural gas, U.S. (rhs) Emerging market and developing economies Liquefied natural gas, Japan (rhs) Source: GEP, June 2021. Source: CMO Oct 2021. production in the USA; and as OPEC+ unwind the OPEC+ production cuts ending, as announced, by rest of their production cuts. Natural gas prices are end-2022, the hydrocarbon sector is projected to expected to remain at high levels through 2022 but grow by 2.9 percent in 2023. Vaccine rollouts and gradually decline as supply constraints ease and higher oil prices will also support confidence and production increases. activity in the non-oil sectors, which is set to expand Against this background, growth in the by 3.4 percent and 2.8 percent in 2022 and 2023, GCC is projected to expand by 4.7 percent in respectively. Saudi Arabia, UAE, and Kuwait are 2022 before moderating to 2.9 percent in 2023. projected to witness highest rebound in economic Collectively, GCC hydrocarbon activity is expected activity driven by the anticipated recovery in oil to expand by 7.3 percent in 2022 reflecting a gradual sector (Table 1). In Saudi Arabia, non-oil sectors expansion in supply among OPEC+ countries. With will continue their growth trajectory, estimated to TABLE 1 • GDP Growth, Current Account, and Fiscal Balance Forecasts Real GDP Growth (percent) Current Account (percent of GDP) Fiscal Balance (percent of GDP) 2019 2020 2021e 2022f 2023f 2019 2020 2021e 2022f 2023f 2019 2020 2021e 2022f 2023f GCC 1.1 –5.0 2.6 4.7 2.9 6.5 0.9 6.0 6.4 5.6 –3.4 –11.4 –4.9 –1.9 –1.1 Qatar 0.8 –3.7 3.0 4.8 4.9 2.4 –2.5 3.1 4.0 5.7 1.0 –3.6 –0.9 3.0 2.9 UAE 3.4 –6.1 2.7 4.6 2.9 8.5 6.0 6.5 7.7 9.1 –1.0 –7.1 –1.3 –1.0 0.5 Kuwait –0.6 –8.9 2.0 5.3 3.0 24.4 20.8 12.2 13.3 14.9 –9.5 –33.2 –24.4 –10.3 –7.7 Saudi Arabia 0.3 –4.1 2.4 4.9 2.3 4.7 –2.3 4.8 5.0 2.3 –4.2 –11.1 –3.8 –2.2 –1.7 Bahrain 2.1 –5.1 3.5 3.2 2.9 –2.4 –9.6 –4.2 –3.7 –3.4 –9.0 –17.6 –8.4 –7.5 –7.0 Oman –0.8 –2.8 3.0 3.4 4.1 –5.5 –13.6 –5.0 –1.1 –0.8 –6.1 –18.6 –2.8 1.8 2.4 Source: Macro-Poverty Outlook, Oct 2021 16 GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY reach 3.3 percent in 2022 reflecting stronger pri- tightened fiscal policy during 2020 (cutting spending vate consumption, gradual resumption of religious on non-COVID related items and raising taxes) to tourism, and higher domestic capital spending address many public finance distortions that have signaled through the National Investment Strategy, been building up prior to the pandemic. which targets SAR 12 trillion over the next 10 years. Meanwhile, the UAE authorities had taken steps to Higher oil exports are expected to strengthen attract tourists to the country ahead of the World current account balances over the forecast Expo, such as providing visas to fully vaccinated period… travelers, which is expected to provide a boost, albeit a milder one than previously projected, to the Higher oil prices and exports are expected to economy in 2022. Qatar’s strong performance is strengthen GCC countries’ external positions, fueled by its final preparation of the FIFA World Cup with their current account surplus projected to 2022 and the expected bumper tourist receipts from hover around 6 percent of GDP in the medium the mass-audience sporting event. term (Figure 28). With hydrocarbons continuing to Despite the anticipated strong performance dominate the GCC’s export basket, the recovery in in 2022–23, the path of recovery for the GCC is global oil and gas demand and prices will drive the muted compared to other regions (Figure 26). region’s trade performance. Both goods exports and Overall, economic activity is expected to return to pre- imports are expected to continue recovery in 2022, pandemic levels by 2022—except for Kuwait which is although current account balances will only gradually projected to normalize in 2023 (Figure 27). However, pick up over the forecast period. Services trade the recovery is subdued and highlights the con- balance will remain in deficit across the GCC, except tinued reliance of GCC economies on the oil sector in UAE and Bahrain, while deficits in the primary and despite their diversification efforts. Furthermore, the secondary income accounts will persist, except in recovery momentum lost steam as most governments Kuwait (Figure 29). FIGURE 26 • Despite Strong Performance in FIGURE 27 • GCC Countries are to Return to pre- 2022–23, the Path of Recovery for Pandemic Growth Levels by 2022, the GCC is Muted Compared to other Except for Kuwait Regions 110 115 110 105 Real GDP (2019=100) Real GDP (2019=100) 105 100 100 95 95 90 90 2019 2020 2021e 2022 2023 2019 2020 2021e 2022f 2023f Emerging market and developing economies High-income countries Qatar UAE Kuwait Commodity-exporting EMDEs Saudi Arabia Bahrain Oman GCC Source: Macro-Poverty Outlook, Oct 2021. Source: Global Prospects Outlook, June 2021; WB staff calculations. Outlook and Risks 17 FIGURE 28 • Current Account Balances Will Only Deficits Will Mostly Persist in the FIGURE 29 •  Gradually Pick Up as Both Exports Services Trade Balances and Primary and Imports Recover and Secondary Income Accounts 8 8 40 30 6 20 4 20 Percent of GDP Percent of GDP 6 Y/Y growth, percent 2 10 Percent of GDP 0 0 0 4 –2 –20 –10 –4 2 –6 –40 –20 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 –8 0 –10 Saudi UAE Qatar Kuwait Oman Bahrain Arabia 2019 2020 2021 2022 2023 Merchandise Trade Balance (lhs) GCC, Current Account Balance (lhs) Services Trade Balance (lhs) GCC, Exports (rhs) Primary and Secondary Income Balance (lhs) GCC, Imports (rhs) Fiscal Balance (rhs) Source: Macro-Poverty Outlook, Oct 2021. Source: Macro-Poverty Outlook, Oct 2021. The projected current account surplus expected to further mobilize non-oil revenues by should help the region in rebuilding buffers that introducing the VAT in 2022 in line with other GCC dropped during the pandemic. Higher oil receipts peers. Meanwhile, expenditures in 2022 are expected and recovery of non-oil earnings as COVID-related to stay relatively at 2021 levels, before declining in restrictions further ease and tourism travel pick up 2023, as the improving economic environment will again, should strengthen foreign currency positions allow most GCC states to refocus on adjustment and sovereign wealth funds. Tighter fiscal policy, measures associated with high wage bills, costly and which lowers import spending, and the falling trend of untargeted subsidies, and inefficient spending. The remittances should also contribute to the building up regional bloc’s most-indebted economy, Bahrain, will of foreign reserves. find it relatively more difficult to address these fiscal issues and will require continuing financial support Favorable oil market conditions are expected to from partner states. improve fiscal balances over the medium term… Overall, government debt as a share of GDP is on a downward trajectory relative to peaks reached Fiscal deficits are projected to continue to decline, during the crisis—except for UAE and Bahrain. reflecting the ongoing recovery, higher oil prices, However, debt-to-GDP ratio will remain higher than its expiring fiscal measures, and consolidation efforts. precrisis level over the medium term (Figure 32)— with Following record deficits in 2020, government finances the exception of Qatar which is projected to register in the GCC are expected to significantly improve over the largest fiscal surpluses during forecast period. As 2022–2023 (Figure 30)—with only Qatar and Oman a result, public gross financing needs are projected to registering fiscal surpluses starting 2022 (Figure 31). remain elevated during the coming two years compared This is mainly driven by a rebound in revenues, spurred to their pre-pandemic levels. by higher oil and gas production and higher oil and However contingent liabilities remain a gas prices—the GCC countries remain largely reliant problem in the GCC. According to latest estimates on hydrocarbon revenues which comprise around 73 by Fitch aggregate GCC non-bank government related percent of total fiscal revenues—will support reducing entities (GRE) debt hit 30 percent of GDP in 2019. All fiscal deficits. Furthermore, Kuwait and Qatar are GCC states have a history of supporting GREs in dis- 18 GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY FIGURE 30 • Favorable Oil Market Conditions Will FIGURE 31 • ...and Lead to Surpluses in Qatar Gradually Improve the GCC Fiscal and Oman by 2022 Deficit… 60 5 0 30 40 0 –2 –1.1 20 –5 Percent of GDP Percent of GDP 20 –2.1 –10 Y/Y growth, percent –4 0 Percent of GDP –3.8 10 –15 –6 –20 –5.7 –20 0 –8 –40 –25 –10 –60 –30 –10 –20 –80 –35 –12 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 –14 –11.7 –30 Saudi UAE Qatar Kuwait Oman Bahrain 2019 2020 2021 2022 2023 Arabia GCC, Fiscal Balance (lhs) Government Revenues (lhs) GCC, Government Revenues (rhs) Government Expenditures (lhs) GCC, Government Expenditures (rhs) Fiscal Balance (rhs) Source: Macro-Poverty Outlook, Oct. 2021. Source: Macro-Poverty Outlook, Oct. 2021. FIGURE 32 • However, Debt Will Mostly Remain gross non-bank private external debt stands at over 61 Steady After a Peak in 2020 percent of GDP. The emirate of Dubai has the highest debt profile among the emirates, debt at close to 80% of 140 its GDP in 2020, according to Fitch’s estimates. Almost 120 US$30bn of debt will fall due in 2023 which is more than what matured during Dubai’s debt crisis in 2009.9 100 Risks to the outlook remain significant and, not- Debt to GDP 80 withstanding the recent oil price increase, are 60 tilted to the downside… 40 The global pandemic is far from over and 20 economic recovery in 2022–2023 is facing considerable downside risks. One of the main risks 0 2019 2020 2021 2022 2023 to global recovery is that new more transmissible variants of the COVID-19 virus prove resistant to Saudi Arabia UAE Qatar Kuwait Oman Bahrain current vaccines. The strength and duration of the global and regional recovery rests on how well the Source: Marco-Poverty Outlook, Oct. 2021). virus is contained everywhere in the world. In the absence of coordinated action, unequal vaccine deployment will delay recovery and further threaten tress which continues to be a possibility especially as lives and livelihoods. The GCC has passed through some of them are linked to national growth strategies. multiple infection waves, but the peaks have fallen The pandemic has compounded concerns regarding rather than risen as vaccine programs have rapidly the UAE’s GREs and the protracted slump in the real expanded and death rates have remained low. estate sector. The ability of GREs to meet their debt obligations is uncertain. According to Fitch Ratings, overall contingent liabilities from GREs in the UAE 9 According to estimates by London based Capital was approximately 87 percent of UAE 2020 GDP and Economics. Outlook and Risks 19 Meanwhile, uncertainty in the oil market pressure due to global supply constraints, food price continues which is especially detrimental to fiscal increases, and de-anchoring inflation expectations sustainability in the region. Challenges in controlling would trigger further increases in policy rates. production levels under the OPEC+ agreement persists, Managed withdrawal of remaining pandemic- leading to further uncertainties to oil price stability. related policy support to ensure ongoing recovery With oil prices rebounding as global demand recovers, continues. The sum of fiscal, monetary, and macro- the incentives to overproduction by OPEC+ members financial measures made in response to the economic increase, adding further uncertainty to the global oil downturn of the pandemic were sizable in the GCC— market. Previous disagreements between member reaching as high as 37 percent of GDP in Bahrain. countries over quota levels gave a sense of the challenge Although tilted toward monetary and macro-financial output controls faces, and prospects for price stability support, many programs are on temporary-basis and remain dependent on large producers consent and the are ending soon. Careful and synchronized exit of these level of cooperation among them. On the other hand, programs is needed to assure protection of vulnerable continued use of crude oil as a substitute for natural gas groups and reduce risks of long-term scars of the crisis. presents an upside risk to the demand outlook. The adverse impacts of the pandemic and the In addition to oil price volatility, fiscal risks declining future demand for oil have accelerated in the region stem from the large public sectors the urgency to delink the path of the GCC econo- and state-owned enterprises. GCC budgets remain mies from oil and speed-up diversification efforts. dominated by rigid spending on wages and transfers The deep downturn and more muted recovery reflect (see Special Focus section) which hampers the the twin shocks the pandemic brought as authorities capacity of fiscal reform. Contingent liabilities in the were forced to both deal with COVID-19 restrictions form of state-owned enterprises, such as those in the on domestic and cross boarder activity and manage UAE pose significant risks to the outlook. Oversupply the shock of oil price slump. Structural reforms are in Dubai’s real estate and hospitality sectors has urgently needed targeting strong, sustained, inclusive, caused a protracted slump in the sector—residential and greener growth; while the hydrocarbon revenues property prices have fallen for the past six years and should continue to play a valuable role in financing the are 30 percent below their 2014 peak. This structural transformation and adaptation of these reforms. Most problem of oversupply may be exacerbated following notably, reforms that targets private-sector develop- the Dubai Expo which is now expected to undershoot ment and growth and the creation of jobs. its original target of attracting 11 million visitors. Moreover, global climate change chal- Tighter global financial conditions due to lenges will impact GCC’s development path. The rising inflationary pressures would result in a mon- global climate challenges would have direct negative etary tightening in the GCC; further dampening spillovers on GCC economies as the rest of the world recovery. A sharp rise in risk aversion or expecta- moves away from fossil fuels. Furthermore, the GCC tions of a faster tapering and removal of monetary region faces a multitude of climate change challenges policy accommodation in major economies could including desertification, water scarcity, biodiversity trigger financial stress globally. Both the United States loss, and the rise in sea levels. High temperatures and the euro area face above-target inflation, which and humidity levels in arid lands have resulted in could prompt sudden policy rate hikes and, in turn, soil degradation and damage. The increased salinity generate a disorderly tightening of global financing from over-exploitation of aquifers affected agricultural conditions. Given the fixed foreign exchange regimes lands which threatens food security in the region. in the GCC, tighter global financial conditions could Facing these challenges would require GCC govern- lead to capital outflows resulting in higher interest ments to embed climate issues at the center of their rates across the region. Meanwhile, rising inflationary economic development plans and policies. 20 GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY SPECIAL FOCUS: THE WAGE BILL AS A REFORM INSTRUMENT IN THE GCC Countries in the Gulf Cooperation Council (GCC) i. A means to distribute oil wealth to citizens; have long run large public sectors. As part of the ii. A means to provide job opportunities for nationals social contract, GCC governments have provided entering the labor market; and free health care, education, social security benefits, iii. A way to provide goods and public services to and subsidized housing and utilities to their citizens. the population; In addition, citizens have been quasi-guaranteed well-paid public sector jobs. This model worked In the GCC the wage bill must be understood in well while oil prices were high and local populations terms of the social contract whereby the state provided limited. However, as oil prices slumped, populations citizens with free education, health care, subsidized grew rapidly, and a new economic model based on utilities and cheap energy with little or no taxation. In private sector growth was adopted in many countries, addition, interest free loans to help youngsters to get reforms to rein in the civil service and put the wage married, buy a house or start a small business served bill on a sustainable footing are urgently required. to bolster support for a system of conservative and paternalistic government while limiting demands for increased political and social freedoms. Why the wage bill is central to GCC However, it is the almost limitless guarantee development of public sector employment with wage premia, at the entry level often double that of the private The public sector wage bill is the amount that sector that has also been used in the context of government spends on wages, salaries, bonuses the social contract to distribute the country’s oil and allowances of public sector workers. In the GCC, wealth. Since the 1970s, this social contract has more than in any other region in the world, the wage witnessed literacy rates rise from just over 50% to bill takes center stage as it simultaneously fulfills almost 100% (Figure 33), seen more than a decade several different functions including: added to GCC life expectancy (Figure 34) with 21 FIGURE 33 • The GCC Model Thus Far Has Led to FIGURE 34 • ...and Life Expectancy… Remarkable Gains in Literacy… Life Expectancy, 1970–2018 Literacy Rate, 1975–2019 77 100 75.3 75 90 Percent (%) of Total Population 73 80 71 70 69 60 67 50 65.2 65 1974 1979 1984 1989 1994 1999 2004 2009 2014 2019 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 Estonia Malaysia KSA Singapore UAE Kuwait Years Source: World Development Indicators. Source: World Development Indicators. FIGURE 35 • …while also Achieving Relatively as providing a disincentive to develop value-added Low Unemployment Rates opportunities in the private sector—something that all Unemployment, 2018 GCC countries are eager to achieve within the context 10 of their respective vision strategies. 7.8 Percent (%) of Total Labor Force 8 5.9 How the wage bill is threatening 5.5 5.5 6 GCC average fiscal sustainability 4.5 3.9 3.8 OECD 4 3.4 average While oil prices were above $100 per barrel 2.6 2.1 (Figure 36), GCC countries were running a large 2 public sector (Figure 37), providing generous social assistance payments to all their citizens while still 0 having a budget surplus.10 However, since the crash Finland KSA Estonia Luxembourg New Zealand US Singapore Malaysia UAE Kuwait of 2014 oil prices have never recovered and are now forecast to be around $7011 per barrel in the future. Despite the prolonged slump in oil prices, it has been Source: World Development Indicators. difficult for the GCC countries to adapt to the “new normal” perhaps due to the inherent challenges associated with rapidly changing the longstanding social contract. This reluctance to rein in spending unemployment rates among the lowest in the world has resulted in budget deficits in every year for the (Figure 35). However, these generous benefits have built 10 While such policies were feasible from a short-term fiscal up over time, and with a rapidly growing population, perspective (but not over the long term), they introduced now amount to a heavy commitment by the state major distortions in the economy. that threatens long-term financial stability as well 11 Commodity Markets Outlook oil price forecast for 2035. 22 GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY FIGURE 36 • High Oil Prices in the Past… FIGURE 37 • …have Allowed Large Public Sectors Across the GCC Even when Oil Prices Oil Price Slumped… 120 Government Expenditure 60 52 100 Average 2010–2014 41 39 41 80 37 Future 40 36 Percent (%) of GDP 35 US Dollar per Barrel forecast 32 32 $60 60 22 19 20 16 40 4 20 0 Estonia Finla nd Luxembourg Malaysia New Zealand KSA Singapore UAE US Kuwait OECD GCC Oil Expor ter 0 10/17/11 10/17/14 10/17/17 10/17/20 Source: Macrotrends 2021. Source: World Development Indicators 2021. FIGURE 38 • …resulting in Continuous Budget a standstill. Gulf governments, like almost all others Deficits around the world, moved quickly to support their citizens and businesses during the pandemic. But this 20 has come at a cost. Now, with soaring public sector 10 deficits and an overhang of public debt (Figure 39), 0 GCC governments are considering changes to their –10 public expenditures to make them more sustainable. –20 –30 –40 The wage bill in context –50 –60 Gauging the size of the wage bill in GCC countries –70 (Figure 40) can be challenging given that their –80 economies are inextricably tied to volatile hydrocarbon 2014 2015 2016 2017 2018 2019 2020e 2021f 2022f 2023f prices. As the oil price fluctuates significantly so does UAE KSA Qatar Oman Kuwait Bahrain GDP. When there is a dramatic drop in the oil price as there was in 2020 due to the pandemic the size of the Source: World Bank, Macro Poverty Outlook, Annual Meetings 2021. wage bill will immediately increase relative to GDP. To account for this, we take an average across several years to smooth out such volatility. past seven years (Figure 38). Even with the recent The figure below (Figure 41) reveals that only surge in oil prices (above $80 per barrel), rigidities in in Qatar and UAE are the wage bills within OECD public spending continues to place fiscal positions of averages both as a percentage of GDP and as a GCC countries on an unsustainable path. percentage of total spending. The picture for the last Just as the public coffers were emptied, the 5 years would be even more dramatic as wage bills COVID-19 pandemic brought the world economy to have increased and oil prices have been muted. Special Focus: The Wage Bill as a Reform Instrument in the GCC 23 FIGURE 39 • Debt Has Been Rising Since the Oil Deficits are Driven by High and Rigid FIGURE 40 •  Shock of 2015 Spending on Wages… 400 Wage Bill, 2016 34 350 Kuwait 32 300 KSA Wage Bill (% of Total Expenditure) GCC 30 250 Estonia 28 200 United States 26 Chile Finland 150 OECD 24 Luxembourg 100 22 Oil 50 Exporters 20 0 Romania 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020e 2021p 18 5 7 9 11 13 15 17 19 UAE KSA Qatar Oman Kuwait Bahrain Wage Bill (% of GDP) Source: IMF, World Economic Outlook, Managing Divergent Recoveries, April 2021. Despite the oil price crash spending on the FIGURE 41 • …which are Mostly Higher than OECD wage bill and the numbers employed in the public Averages, Except for Qatar and the UAE sector have risen inexorably upwards. Kuwait’s 2022 GCC Wage Bill in Perspective 2000–2016 average budget allocated KWD 12.6 bn (approximately $42bn) 45 for salaries and wages or 55% of total expenditures. 40 This figure has risen from just KWD 1.8 bn in 2005 and 35 OECD was still only KWD 4.8 bn in 2013. Almost a third of 30 average the Kuwaiti civil service has been recruited in the past (% total spending) 5 years despite signs of overstaffing and exceeding 25 OECD average (Figure 42). Alarmingly Kuwait’s wage 20 bill alone has exceeded its total revenues by a signifi- OECD 15 average cant margin in the last two years and is well beyond 10 (% GDP) GCC average (Figure 43). 5 While Kuwait’s wage bill may be particularly 0 challenging other countries in the GCC face a similar Bahrain Kuwait Oman Qatar Saudi United Arab situation. For instance, Oman’s wage bill has doubled Arabia Emirates in the past decade despite efforts to cap its growth. Wage bill (% GDP) Wage bill (% total spending) Govt. employment (% total) Saudi Arabia’s allowances for civil servants have risen from SAR 44 bn in 2016 to SAR 148 bn in 2019 and Source: IMF Economic Prospects and Policy Challenges for the GCC countries, Oct. 2020. they now form more than a third of the total wage bill. GCC nationals are offered positions within the civil service as part of the social contract (in some countries the right to state employment is even men- private sector. Many GCC countries have a public tioned in the constitution or basic law). However, the sector that is well within OECD norms—size-wise. impact of running a large civil service is compounded However, public servants are paid a wage premium by also offering high salaries often at a premium of between 50–100% which results in a high wage bill to what public servants could expect to earn in the relative to total spending and GDP. 24 GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY FIGURE 42 & 43 • In Kuwait, Public Sector Staff Numbers are in-Line with Global Benchmarks, but Salaries are High, Leading to an Outsized Wage Bill Employment in Government Public Sector Wage Bill 35 20 30 Percent (%) of Total Employment 2017 15 25 Percent (%) of GDP GCC average 20 10 Oil exporter average 15 10 5 5 0 0 Norway Sweden Finland Estonia Kuwait OECD UK Malaysia USA Luxembourg Chile New Zealand Kuwait Finland Norway Estonia OECD UK USA Luxembourg Chile Source: Kuwait Civil Service Commission 2019; ILO and OECD 2017. The wage bill and service delivery FIGURE 44 • Higher Public Spending Has Not Resulted in Improved Government Effectiveness High levels of public spending do not always translate to high levels of service delivery or government efficiency. Only the UAE exceeds some of the high- Finland income country scores for government effectiveness Luxembourg (Figure 44). Disaggregating the wage bill reveals New Zealand that the majority of the wage bill is accounted for by the education and health sector wage bills. These Estonia high levels of spending are not resulting in high United Arab Emirates performance, far from it (Figure 45). Malaysia GCC countries are outliers in terms of educa- Qatar tion underperformance compared to spending per Bahrain capita. Kuwait spent an average per pupil of US$ 9,392 (average of Grades 1–9) the same as Finland Saudi Arabia and around the OECD high income country average. Oman Spending at this rate should result in test scores Kuwait between 500 and 570 but Kuwait’s test scores are less than 400, on a par with many low-income 40 50 60 70 80 90 100 110 countries. Source: Worldwide governance indicators 2021. Saudi Arabia spends a considerable share of GDP on its education sector wage bill 5.2% of GDP com- pared to just 3.5% for high income countries. However, reading (399 versus 487), mathematics (373 versus Saudi students attain only 7.8 years of learning adjusted 489), and science (386 versus 489). schooling for 12.4 years of formal training. Students The need to find employment for GCC nationals in Saudi Arabia score lower than OECD students in in the public sector has resulted in experienced expat Special Focus: The Wage Bill as a Reform Instrument in the GCC 25 FIGURE 45 • Despite High Spending on Education FIGURE 46 • Despite Some Progress Public Outcomes Remain Poor Employment Remains above 70% on average HKG KOR 100 HKG JPN LVA 90 USA FIN AUS POL EST IRL AUT 80 CZE SVN NLD DNK SWE 70 SRB DEU CHE 60 HUN PRT BEL GBR NOR BGR LTU ESP CYP 50 UKR SVK NZLISR ISL LUX 40 Harmonized Test Score MUSMYS ITA MLT FRA 30 SYC CHL ARE ARM 20 MDASWZTHA 10 IRN MEX CRI BDI ECU ALB OMN 0 BFA LKAGTM COL BHR KWT OMN QAT SAU GIN TGO IDN JOR PER BRA ARG UGA BEN HND PAN MOZ CIV PRY JAM 2000 or earliest available 2016 NPL CMR TLS KWT MWI MAR ETH IND IND Source: IMF Article IV Report 2019; and IMF Public Wage Bills in the Middle East and MDG GUY DOM TCD PAK MRT ZAF Central Asia, 2019. YEM SLE MLI NER GHA Log Per-Student Spending (Average G1-G9) With the majority of nationals employed in the public sector, government effectively becomes the Source: World Bank WDI and TIMMS. wage setter for the entire economy as private busi- nesses will have to pay high salaries to entice nationals staff being replaced by younger locals paid much higher to join their workforce, or give rise to labor market seg- salaries. This has increased the education sector wage mentation. In the past, with much smaller populations, bill without also resulting in higher outcomes, on the the need for private sector workers has been largely contrary. Clearly spending more money in this environ- met through unrestricted importation of low-cost labor ment will not lead to improved results and it illustrates from the sub-continent and neighboring Arab countries. how the social contract aims of both providing a high This has created a bi-furcated labor market whereby level of public service and employment opportunities highly paid nationals dominate the public sector while for nationals can come into conflict. poorly paid expatriates fill the private sector. Now that local populations are exceeding the capacity of the public sector to absorb new entrants to the labor The wage bill’s impact on the private market, governments in the region are looking for a way sector to unwind this demographic imbalance by restricting entry of expatriates and replacing existing expatriates Given the premium paid over private sector salaries, with nationals. Despite a reduction in public employ- the job security, prestige and shorter working ment, it still remains above 70% on average. hours, the GCC public sector is often described as the employer of first and last resort for its citizens. Although the percentage of nationals employed in the Tackling the wage bill in the GCC – public sector has come down in the past two decades the way forward it still remains above 70% on average (Figure 46). Given Bahrain’s more challenging fiscal situation Tackling this issue will require a multi-pronged approach, the percentage of nationals employed in the public beginning with establishing strong recruitment sector is only 35%. Oman has also made great strides controls and budget ceilings on pensions and wages in limiting numbers entering the public service and in the public sector. Beyond short term controls, GCC government recently retired all employees with more governments need to put in place comprehensive than 30 years of service. civil service reform measures. This would include 26 GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY measures such as a broad-based reduction in salaries, FIGURE 47 • Tackling Wage Bill Reform in the a restructuring of allowances (including phasing out GCC Will Require a Multi-Pronged Approach the cost of living allowances) and regulatory changes. Long term changes must also be made in how the civil Ghost Workers Easier service is managed to create a culture that rewards Cut inefficient Restrict # of job spending (PER) good performance and meets the needs of government. Ease of implementation offers refused Voluntary Hiring Given the differences in the respective size and retrenchment Freeze Improve public Match private procurement sector benefits structure of each administration as well as the scale Freezing wages SOE reform of oil and gas revenues, each country will require a Moving to defined Hiring Freeze tailored solution. However, international experience contribution pensions Harder indicates that successful reforms combine public Compulsory Cutting wages retrenchment sector right-sizing with a focus on improved service Less Greater delivery and performance, coupled with structural Impact investment climate reforms to provide opportunities Public Sector Reforms Other reform areas in and invigorate the private sector. This will require Source: Author’s elaboration. a clear reform plan that addresses the interlinkages highlighted between fiscal, civil service, and labor market reforms as well as a robust communications countries enacted a number of wage bill reforms strategy to convince citizens of the need for reform. during the aftermath of the global financial crisis The schematic below (Figure 47) provides a including hiring freezes, salary cuts and early retire- quick guide to some of the most important reform ment schemes. Often managing to implement such policies and a judgement as to how easy they would changes by grand-fathering existing staff and applying be to implement and their respective impact on fiscal the reduced wages to new employees. The types sustainability. Civil servants are a powerful vested of initiatives that can be undertaken in the GCC will interest in any country, but in the GCC where they also depend on country specificities, and the programs constitute the majority of the working age citizens, themselves must be tailored to the local context. For they must be brought along in the reform process. the GCC to reach its Visions of having diversified, This is likely to require grandfathering existing staff private sector led growth, the time for action on the while restricting new entrants to the administration oversized public sector wage bills is now. and reducing their salaries and bonuses. The keys to success include starting with a pro- gram of outreach and communication that must be Bibliography championed by the highest levels of decision-makers. Outlining a clear reform agenda and sticking to it is Capital economics, 2021. “Dubai World Expo: near- key to indicate commitment. Too many past efforts at term boost, debt risks linger”. reform launched during periods of low oil revenues Fitch Ratings, 2021, “GCC GRE Debt Set to Continue have been abandoned once the oil price recovered. Rising in 2021”. https://www.fitchratings.com/ It will be important to break this cycle. The current research/sovereigns/gcc-gre-debt-set-to-continue- upswing on oil prices presents a unique opportunity rising-in-2021–10–12–2020. to showcase this commitment. Governments must Google. 2021. COVID-19 Community Mobility Reports. implement policies that address the sustainability https://www.google.com/covid19/mobility/. of both public sector employment and wages and HIS Markit Purchasing Manager’s Survey, 2021. embed wage bill reforms in broader civil service International Labour Organization. reforms that improve service delivery. IMF 2020a. IMF Article IV, 2019. Kuwait. GCC governments can learn from the reform IMF 2020b. Economic Prospects and Policy Challenges experiences of other countries. European Union for the GCC countries, Oct. 2020. Special Focus: The Wage Bill as a Reform Instrument in the GCC 27 IMF 2019. Public Wage Bills in the Middle East and Hasell, Bobbie Macdonald, Diana Beltekian and Central Asia, 2019. Max Roser (2020) – “Coronavirus Pandemic IMF 2008. “Understanding the Inflationary Process in (COVID-19)”. Published online at OurWorldInData. the GCC Region: The Case of Saudi Arabia and org. Retrieved from: ‘https://ourworldindata.org/ Kuwait”. coronavirus’. IMF 2021a. World Economic Outlook, Managing United Nations. Statistical Division. Un Comtrade. Divergent Recoveries, April 2021 United Nations. Accessed November 10, 2021. IMF 2021b World Economic Outlook, October 2021 http://comtrade.un.org/. IMF. 2021c. International Financial Statistics. US Energy Information Administration. Washington, DC: International Monetary Fund. World Bank 2021a. World Development Indicators. Johns Hopkins University, Center for Systems Science World Bank. 2021b. Commodity Markets Outlook, and Engineering. 2021. COVID-19 Data from Our October 2021. Washington, DC: World Bank. World. World Bank. 2021c. Global Economic Prospects, June OPEC. 2021. Monthly Oil Market Report, January 2021. Washington, DC: World Bank. 2021–October 2021. Vienna: OPEC Secretariat. World Bank. 2021d. Macro Poverty Outlook - Fall 2021. Our world in data, 2021. Hannah Ritchie, Edouard Washington, DC: World Bank. Mathieu, Lucas Rodés-Guirao, Cameron Appel, World Bank. 2021e. Worldwide Governance Indicators- Charlie Giattino, Esteban Ortiz-Ospina, Joe 2021. Washington, DC: World Bank. 28 GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY ANNEX 1 GCC SUMMARY STATISTICS TABLE GCC Selected Economic Indicators 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 GCC, Real GDP at Market Price, % growth 3.6 4.1 2.5 –0.2 1.9 1.1 –4.9 2.6 4.7 2.9 GCC, Private Consumption, Contr to Growth % 2.9 –0.6 0.6 1.9 1.3 2.1 –2.8 1.2 1.3 1.2 GCC, Govt. Consumption, Contr to Growth % 2.0 –0.4 –2.9 0.7 0.6 0.6 0.5 0.3 0.2 0.2 GCC, Fixed Investment, Contr to Growth % 2.3 1.1 –0.1 –0.7 0.1 0.5 –1.7 1.3 1.0 1.0 GCC, Net Exports, Contr to Growth % –3.2 2.5 5.1 –2.6 1.5 –0.1 –0.6 –0.1 1.6 0.6 GCC, Current Account Balance, %GDP 17.8 –2.4 –2.7 2.9 9.6 7.0 0.9 6.0 6.4 5.6 GCC, Fiscal Balance, %GDP 1.6 –10.8 –9.9 –7.4 –3.6 –3.8 –11.7 –5.7 –2.1 –1.1 29 ANNEX 2 COUNTRY SUMMARY TABLES Key Economic Indicators COUNTRY SUMMARY TABLES BAHRAIN SELECTED ECONOMIC INDICATORS 2015 2016 2017 2018 2019 2020 2021E Nominal GDP, US$, billions 31 32 35 38 38 34 37 Real GDP, % change 2.5 3.6 4.3 1.7 2.1 –5.1 3.5 Hydrocarbon –0.1 –0.1 –0.7 –1.3 2.2 0.1 0.7 Non-hydrocarbon 3.1 4.5 5.5 2.4 1.9 –7.0 3.9 CPI Inflation Rate, average, % 1.7 2.7 1.4 2.1 1.0 –2.3 1.5 Government Revenues, % GDP 18.1 17.5 18.2 22.0 23.8 17.8 23.8 Government Expenditures, % GDP 36.5 35.0 32.5 33.7 32.8 35.4 32.2 Fiscal Balance, % GDP –18.4 –17.6 –14.3 –11.7 –9.0 –17.6 –8.4 General Government Gross Debt, % GDP 66.1 81.4 88.4 94.9 101.4 130.0 128.1 Merchandise Exports, % nominal change –20.0 –7.3 12.9 12.3 –1.8 –13.0 11.2 Merchandise Imports, % nominal change –16.4 –5.5 13.6 13.3 –2.0 –18.3 13.1 Current Account, % GDP –2.0 –4.2 –4.0 –6.5 –2.4 –9.6 –4.2 Memorandum Items Hydrocarbon sector, % GDP 13.4 11.1 12.4 14.9 14.0 11.1 14.0 Source: World Bank, Macro Poverty Outlook, Fall 2021. 31 KUWAIT SELECTED ECONOMIC INDICATORS 2015 2016 2017 2018 2019 2020 2021E Nominal GDP, US$, billions 115 109 121 138 137 107 165 Real GDP, % change 0.6 2.9 –4.7 2.4 –0.6 –8.9 2.0 Hydrocarbon –1.7 3.9 –14.5 2.3 –1.0 –9.5 –0.6 Non-hydrocarbon 4.2 1.4 9.9 2.6 0.0 –8.1 5.1 CPI Inflation Rate, average, % 3.3 3.2 2.2 0.6 1.1 2.1 2.4 Government Revenues, % GDP 39.5 39.6 43.7 49.3 41.6 32.4 22.0 Government Expenditures, % GDP 52.9 53.6 52.6 52.4 51.1 65.6 46.3 Fiscal Balance, % GDP –13.4 –13.9 –8.9 –3.1 –9.5 –33.2 –24.4 General Government Gross Debt, % GDP 4.7 10.0 20.5 15.1 11.6 11.7 7.9 Merchandise Exports, % nominal change –45.6 –13.8 18.6 28.6 –7.7 –35.2 55.0 Merchandise Imports, % nominal change 2.7 0.1 7.0 12.0 –11.5 –24.2 55.5 Current Account, % GDP 3.5 –4.6 8.0 14.4 24.4 20.8 12.2 Memorandum Items Hydrocarbon sector, % GDP 59.4 60.0 53.9 53.8 53.5 53.2 51.8 Source: World Bank, Macro Poverty Outlook, Fall 2021. OMAN SELECTED ECONOMIC INDICATORS 2015 2016 2017 2018 2019 2020 2021E Nominal GDP, US$, billions 68 65 71 80 76 63 81 Real GDP, % change 4.6 5.1 0.3 0.9 –0.8 –2.8 3.0 Hydrocarbon 4.5 3.8 –3.5 1.2 –0.3 –1.7 3.5 Non-hydrocarbon 4.7 5.9 2.7 0.8 –1.1 –3.9 1.8 CPI Inflation Rate, average, % 0.1 1.1 1.6 0.9 0.1 –0.9 3.1 Government Revenues, % GDP 34.5 28.7 33.2 36.2 38.6 32.9 31.5 Government Expenditures, % GDP 52.0 52.8 45.8 44.6 44.7 51.5 34.3 Fiscal Balance, % GDP –17.5 –24.1 –12.6 –8.4 –6.1 –18.6 –2.8 General Government Gross Debt, % GDP 17.0 33.7 46.0 51.2 60.6 81.0 70.2 Merchandise Exports, % nominal change –31.1 –20.7 19.2 39.6 –20.9 7.8 2.4 Merchandise Imports, % nominal change –3.0 –15.1 12.0 12.1 –21.7 –5.3 4.2 Current Account, % GDP –15.9 –19.1 –15.5 –5.4 –5.5 –13.6 –5.0 Memorandum Items Hydrocarbon sector, % GDP 33.3 26.6 29.7 35.9 34.4 28.1 29.3 Source: World Bank, Macro Poverty Outlook, Fall 2021. 32 GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY QATAR SELECTED ECONOMIC INDICATORS 2015 2016 2017 2018 2019 2020 2021E Nominal GDP, US$, billions 162 152 161 183 176 157 168 Real GDP, % change 4.8 3.1 –1.5 1.2 0.8 –3.7 3.0 Hydrocarbon –0.8 –0.8 –2.3 –0.3 –1.8 –1.9 3.0 Non-hydrocarbon 9.1 5.8 –1.0 2.2 2.4 –4.7 3.0 CPI Inflation Rate, average, % 3.0 2.3 0.3 0.1 –0.9 –2.6 1.0 Government Revenues, % GDP 31.8 30.9 27.8 31.2 33.6 31.6 33.9 Government Expenditures, % GDP 32.5 40.1 34.6 28.9 32.5 35.2 34.8 Fiscal Balance, % GDP –0.7 –9.2 –6.8 2.3 1.0 –3.6 –0.9 General Government Gross Debt, % GDP 34.6 45.6 50.5 49.8 57.0 64.1 59.9 Merchandise Exports, % nominal change –34.2 –21.5 17.5 20.4 –10.3 –21.9 19.8 Merchandise Imports, % nominal change –7.4 7.1 –2.0 5.8 1.5 –2.7 5.5 Current Account, % GDP 8.5 –5.5 4.0 9.1 2.4 –2.5 3.1 Memorandum Items Hydrocarbon sector, % GDP 39.4 31.8 34.0 39.0 35.9 28.7 28.7 Source: World Bank, Macro Poverty Outlook, Fall 2021. SAUDI ARABIA SELECTED ECONOMIC INDICATORS 2015 2016 2017 2018 2019 2020 2021E Nominal GDP, US$, billions 654 645 689 787 749 702 768 Real GDP, % change 4.1 1.7 –0.7 2.4 0.3 –4.1 2.4 Hydrocarbon 5.3 3.6 –3.1 3.1 –3.6 –6.7 –0.3 Non-hydrocarbon 3.2 0.2 1.3 2.2 3.3 –2.3 4.0 CPI Inflation Rate, average, % 1.3 2.0 –0.9 2.5 –1.2 3.4 3.3 Government Revenues, % GDP 25.0 21.5 26.8 30.7 33.2 29.3 31.0 Government Expenditures, % GDP 40.8 34.3 36.0 36.6 37.4 40.3 34.7 Fiscal Balance, % GDP –15.8 –12.9 –9.2 –5.9 –4.2 –11.1 –3.8 General Government Gross Debt, % GDP 5.8 13.1 16.9 19.0 23.1 32.5 31.6 Merchandise Exports, % nominal change –38.6 –7.9 19.0 30.2 –7.9 –29.9 29.3 Merchandise Imports, % nominal change –4.5 –19.9 –1.0 –0.9 3.0 –13.7 10.4 Current Account, % GDP –8.7 –3.7 1.5 9.0 4.7 –2.3 4.8 Memorandum Items Hydrocarbon sector, % GDP 26.9 24.6 28.5 33.4 31.2 23.1 20.7 Source: World Bank, Macro Poverty Outlook, Fall 2021. Annex 2Country Summary Tables 33 UNITED ARAB EMIRATES SELECTED ECONOMIC INDICATORS 2015 2016 2017 2018 2019 2020 2021E Nominal GDP, US$, billions 358 357 386 422 417 359 435 Real GDP, % change 5.1 3.1 2.4 1.2 3.4 –6.1 2.7 Hydrocarbon 5.2 2.6 –3.2 2.5 2.6 –6.0 –1.6 Non-hydrocarbon 5.1 3.3 4.8 0.7 3.8 –6.2 4.5 CPI Inflation Rate, average, % 4.1 1.6 2.0 3.1 –1.9 –2.1 –0.2 Government Revenues, % GDP 29.0 28.9 28.6 31.3 30.3 26.0 29.7 Government Expenditures, % GDP 32.4 30.9 30.2 30.1 31.3 33.1 31.0 Fiscal Balance, % GDP –3.4 –2.0 –1.6 1.2 –1.0 –7.1 –1.3 General Government Gross Debt, % GDP 18.7 20.2 20.0 20.9 26.8 38.3 37.1 Merchandise Exports, % nominal change –9.6 –0.2 6.5 2.3 2.8 –17.0 33.8 Merchandise Imports, % nominal change –3.7 1.5 2.5 –3.3 4.5 –15.9 30.2 Current Account, % GDP 4.9 3.7 7.1 9.3 8.5 6.0 6.5 Memorandum Items Hydrocarbon sector, % GDP 31.1 38.9 39.1 36.9 34.1 21.8 19.3 Source: World Bank, Macro Poverty Outlook, Fall 2021. 34 GULF ECONOMIC UPDATE: SEIZING THE OPPORTUNITY FOR A SUSTAINABLE RECOVERY COMMODITY PRICES TABLES NOMINAL US DOLLARS ENERGY UNIT 2015 2016 2017 2018 2019 2020 2021 2022 2023 2035 Coal, Australia US$/mt 58.9 66.1 88.5 107.0 77.9 60.8 140 120 90 55 Crude oil, average US$/bbl 50.8 42.8 52.8 68.3 61.4 41.3 70 74 65 70 Natural gas, Europe US$/mmbtu 6.8 4.6 5.7 7.7 4.8 3.2 14.6 12.6 9.2 6.5 Natural gas, US US$/mmbtu 2.6 2.5 3.0 3.2 2.6 2.0 4.1 4 3.9 4 Liquefied natural gas, Japan US$/mmbtu 10.9 7.4 8.6 10.7 10.6 8.3 11.9 11.4 10 7.5 Source: World Bank (2021b). CONSTANT US DOLLARS, 2010 = 100 ENERGY UNIT 2015 2016 2017 2018 2019 2020 2021 2022 2023 2035 Coal, Australia US$/mt 60.2 70.3 91.0 105.2 78.3 61.4 139.2 117.4 86.5 46.4 Crude oil, average US$/bbl 51.9 45.5 54.3 67.2 61.7 41.7 69.6 72.4 62.5 59 Natural gas, Europe US$/mmbtu 7.0 4.9 5.9 7.5 4.8 3.3 14.5 12.3 8.8 5.5 Natural gas, US US$/mmbtu 2.7 2.7 3.0 3.1 2.6 2.0 4.1 3.9 3.7 3.4 Liquefied natural gas, Japan US$/mmbtu 11.2 7.8 8.8 10.5 10.6 8.4 11.8 11.1 9.6 6.3 Source: World Bank (2021b). CRUDE OIL PRODUCTION In million barrels per day 2012 2013 2014 2015 2016 2017 2018 2019 2020 Q3-2021 Bahrain 0.17 0.2 0.2 0.2 0.2 0.2 0.19 0.19 0.2 0.19 Kuwait 2.98 2.93 2.87 2.86 3 2.7 2.74 2.68 2.44 2.45 Oman 0.81 0.84 0.86 0.89 0.91 0.88 0.87 0.84 0.95 0.97 Qatara 1.50 1.37 1.37 1.36 1.34 1.36 Saudi Arabia 9.76 9.64 9.71 10.19 10.46 9.96 10.32 9.81 9.21 9.54 UAE 2.65 2.8 2.79 2.99 3.09 2.97 3.01 3.06 2.78 2.76 Source: OPEC (2021); IEA (2021); and JODI (2021a). a Qatar Q3-2021 column includes latest available data i.e. July 2021. NATURAL GAS GROSS PRODUCTION TABLE In billion m3 2012 2013 2014 2015 2016 2017 2018 2019 2020 Bahrain 13.1 14 14.7 14.8 14.4 14.5 14.6 16.9 16.4 Kuwait 14.7 15.5 14.3 16.1 16.4 16.2 16.9 18.4 15.0 Oman 14.7 16 16.4 18.7 17.2 18.4 17.1 18.1 36.9 Qatar 150 163 171.1 175.9 172.2 171.4 175.4 181.3 171.3 Saudi Arabia 94.4 95 97.3 99.2 105.3 109.3 112.1 113.6 112.1 UAE 82.4 83.2 84.3 84.3 91.4 91.6 95.4 93.7 55.4 Sources: GECF (2020) (data for Qatar, UAE, and Oman) and British Petroleum Statistical Review of World Energy for 2020 data. Annex 2Country Summary Tables 35 1818 H Street, NW Washington, DC 20433