The Gulf states have announced their largest ever budgeted spending for the year 2018 despite oil prices still faring way below averages during the boom years. Governments have shifted their strategy to expansionary budgets after exercising belt tightening in the last couple of years.
With almost all GCC countries (excluding Bahrain) announcing the budgets, overall budgeted spending of the GCC stands at $430bn compared to $411bn in 2017, a growth of 7 per cent. Budgeted revenues stands at $345bn versus $311bn in 2017, up by 11 per cent. Growth in revenue has been largely because of higher oil price estimated this year compared to 2017. In 2018, oil price assumed by most of the countries stand at $50/bbl. Only Qatar has assumed an oil price of $45/bbl while the UAE did not announce budgeted oil price for its federal budget.
Despite expansionary budgets, deficit is expected to drop by 6.6 per cent to $84bn. Deficit to nominal GDP of GCC is expected to drop to 5.6 per cent compared to 6.4 per cent in 2017. Drop in deficit to GDP would be a combination of both i.e. increase in the denominator (Nominal GDP) and drop in deficit because of higher revenue.
The governments have announced increased budgets for 2018 for sector such as health care, education and infrastructure and have also budgeted to go on large scale infrastructure and construction spending. Governments have also tried to strike a balance between the need for higher expenditure and reducing budget deficits, which had been rare over the previous decade when oil was above the $100/bbl. At the same time, greater focus has been given to realignment of non-oil sectors in the economy and its greater contribution going forward.
In terms of revenue compositions, most of it would be contributed by Saudi Arabia at 61 per cent, followed by Kuwait and Qatar at 14.3 per cent and 13.9 per cent, respectively. On an average contribution from the non-oil sources is estimated at 27 per cent compared to 25.6 per cent in 2017. Amongst the countries who gave proper disclosure of their contribution non-oil sources, Saudi Arabia stood the highest at 37.2 per cent followed by Oman at 28.6 per cent. Oil revenue contribution the total stands at the highest in Kuwait at 88.7 per cent.
In terms of spending compositions, most of it would from Saudi Arabia at 61 per cent, followed by Kuwait and Qatar at 15 per cent and 13 per cent, respectively. While at the deficit level, only UAE is budgeted to breakeven while all others are estimated to report a deficit ranging between $7.7-52.0bn. Saudi being the highest while Qatar being the lowest. In terms of deficit to GDP, Kuwait will be the highest at 13.1 per cent while Qatar being lowest at 4.3 per cent. We believe, the actual deficit in 2018 to be much lower than the budgeted one as oil price estimate taken by all the governments stands very conservative compared to current and expected oil price of $60-65/bbl.
The governments have announced increased budgets for 2018 for sector such as health care, education and social segments of the GCC. Education in particular has become more and more important lately as governments across GCC wish to foster inclusive growth and create job opportunities for their future generations. Overall, GCC countries have budgeted $143bn for these sectors in 2018. Saudi Arabia allocated the highest amount at $91bn. In terms of composition, UAE has allocated the highest at 51 per cent from its total budget while Qatar allocation stands at 20.5 per cent.
In light of increasing oil prices, government also took into account increasing provisions to low income segments and budgeted a hike in government subsidies and grants. Subsidies were mainly focused on fuel, electricity, water. As per the disclosures announced, subsidies in Kuwait have been budgeted to be highest at $11.2bn in 2018 compared to $4.5bn in Saudi Arabia and $1.9bn in Oman. The same last year in Kuwait, Saudi Arabia and Oman stood at $10.2bn, $2.7bn and $1.0bn, respectively.
The budgeted revenue for fiscal 2018 is SAR 783bn, compared with SAR 692bn budgeted in the previous fiscal year, increase of 13.2 per cent. Oil revenue is estimated to grow to SAR 492bn compared to budgeted numbers of SAR 480bn in 2017. Non-oil revenue has been projected at SAR 291bn, 37 per cent higher than the budgeted numbers for 2017. The budgeted expenditure of SAR 978bn for 2018 is higher by 5.6 per cent when compared to the actuals of 2017. With revenue of SAR 783bn and spending’s of SAR 978bn, the projected budget deficit comes out to be SAR 195bn for 2018, lower than the budgeted estimate of SAR 198bn in 2017 and also lower than the actual deficit of SAR 230bn in 2017.
Kuwait budget projects spending at KWD 20bn and revenues at KWD 15bn. Oil revenues are expected to reach KWD 13.3bn, up from KWD 11.7bn a year ago. Non-oil income is projected to remain almost flat at KWD 1.6bn. As per Kuwait’s Finance Minister, the budget is based on an average oil price of $50/bbl and that the deficit would be financed by borrowing and using reserves. The KWD 5bn deficit would be before the transfer of 10 per cent of revenues to Kuwait’s sovereign wealth fund. The budget deficit for the current fiscal year, which ends on March 31, 2018, was estimated at KWD 6.5bn before the 10 per cent deposit into the sovereign wealth fund.
Oman government expects to earn revenue of RO 9.5bn in 2018 which is 9.2 per cent higher than the budgeted revenue last year, on account of 11 per cent increase in the oil and gas revenue and 5.0 per cent increase in the non-oil revenue. Budgeted oil revenue for 2018 is RO 4.87bn, higher by 9.4 per cent compared to the budgeted amount of RO 4.45bn in 2017. Gas revenue for the year 2018 has been budgeted higher by 15 per cent to RO 1.91bn compared to RO 1.66bn in 2017. This is the highest ever budgeted gas revenue and major thrust to it has come because of the Khazzan Gas project. Non-oil revenue budgeted for the year 2018 stands at RO 2.72bn compared to budgeted 2017 number of RO 2.59bn, higher by 5 per cent. Oman government has budgeted spending of RO 12.5bn in 2018 which is 6.8 per cent YoY. While the budget deficit for 2018 is estimated at RO 3bn.
The budgeted revenue for fiscal 2018 is QAR 175.1bn, compared with QAR 170.1bn in the previous fiscal year, increase of 2.9 per cent. The hike in revenue although not revealed would be largely because of recovery in oil and gas prices and also because of introduction of VAT which will increase the tax based revenue. Spending is expected to total QAR 203.2bn, up 2.4 per cent from the budget plan for 2017. With revenue of QAR 175.1bn and spending’s of QAR 203.2bn, the projected budget deficit comes out to be QAR 28.1bn for 2018.
The UAE announced a record AED 51.4bn federal budget for next year with a focus on education, healthcare, and community wellbeing as the country boosts spending off the back of stronger economic activity and a higher oil price. The lion’s share of next year’s budget, AED 26.3bn or 43.5 per cent of the total, is dedicated to social development programme. AED 10.4bn is allocated for general education and higher education, totalling 17.1 per cent of the overall budget and AED 4.5bn or 7.4 per cent is earmarked for the health sector.