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GCC earmarks budget surpluses for future
May 18, 2014, 1:59 pm

The GCC states have been doing the right thing by investing part of their surpluses in areas where competitive advantages can be enhanced. At stake is making the best utilization of available resources, something evidenced by budgetary surpluses and sovereign wealth funds.

The six-nation grouping of Gulf Cooperation Council (GCC) countries is financially well-off. According to the World Bank, three of the member countries — Qatar, Kuwait and the UAE — are among the Top Ten in the world with regards to per capita income on purchasing power parity. By one account, GCC budgets collectively posted a surplus of $147 billion in fiscal year 2013. Two of them, Qatar and Kuwait, run their fiscal years from April to March; thus there is a slight overlap into 2014.

Yet, all GCC economies except for Bahrain recorded surpluses in their budgets. Reportedly, Bahrain’s budged was in red for about $1.3 billion, a sizeable amount by virtue of comprising more than 4 percent of GDP. Nevertheless, the figure falls short of the projected deficit of $2.2 billion partly on the back of stronger revenues, thanks to steady oil prices together with the checks on spending.

Still, actual budgetary surpluses could still be higher reflecting conservative estimates made by GCC countries as a strategic choice. For instance, Kuwait has a practice of setting aside 10 percent of treasury income to a special reserve account known as the Reserve Fund for Future Generations, designed to ensure that no Kuwaiti generation lives at the expense of others.

In addition, the value of sovereign wealth funds (SWFs) of the six-nation grouping is extraordinary by global standards, in turn allowing for economic diversification where advantages are possible. The combined value amounted to a staggering $2.2 trillion in April, representing about 35 percent of all SWFs in the world. The Sovereign Wealth Institute puts the global value of SWFs at $6.4 trillion.

The UAE alone boasts some $974 billion, for 15 percent of the world’s total. Saudi Arabia, Kuwait and Qatar hold SWF estimated at $679 billion, $410 billion and $170 billion. The surpluses plus sovereign funds allow for economic diversification where possible. Arguably, GCC economies have competitive advantages in certain sectors like aviation, financial services, hospitality and in hosting conferences and exhibitions, to name a few.

Conversely, GCC economies do not necessarily have competitive advantages in general manufacturing, with oil and gas related industries the exceptions. Saudi Arabia and Qatar are the largest exporters of crude oil and liquefied natural gas LNG in the world, respectively. It is suggested that GCC economies may lack Japan’s technological lead and China’s production cost advantage. Plus, a good number of industrial jobs could end up with immigrant workers, who in turn make up the majority of the GCC workforce. In fact, GCC economies provide employment opportunities for people from the world over.

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