GCC fiscal reform progress slow and uneven: Report

Most GCC states will continue to run fiscal deficits and accumulate debt despite policy measures taken to slow fiscal deterioration, assuming oil prices remain moderate as expected, according to a research announcement from Moody’s Investors Service on Friday.

The agency expects that GCC governments will increase spending and delay any unpopular austerity measures at the current moderate oil prices to preserve high living standards and social stability. Moody’s analysis implies that fiscal breakevens are unlikely to decline significantly in the near- to medium-term.

“Lower oil prices since 2014 have significantly weakened GCC sovereigns’ public finances,” said Alexander Perjessy, a Moody’s Vice President – Senior Analyst and the report’s co-author. “The implementation of fiscal consolidation measures and reforms has been uneven across the six GCC sovereigns and has so far been more concentrated on the expenditure side,” he added.

“Most GCC countries have recently begun to reverse these cuts, with total government spending across the GCC rising by around 10 percent in 2018,” said Perjessy.

The agency added that it does not expect government wage bills to decline significantly in the medium-term. In tandem, little is being done to increase overall government revenue intake. Saudi Arabia, the UAE, and Bahrain are the only GCC sovereigns to have implemented the 2016 agreement on five percent VAT by 2018.