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Gulf residents 'should expect fewer giveaways' in 2016
December 12, 2015, 8:55 am
Fuel subsidies have been eliminated in the UAE while Bahrain is also reviewing the policy.

Despite global economic uncertainties, prompted by lower oil prices, rising US interest rates, the Chinese slowdown and the lifting of Iran sanctions, GCC countries are better-placed than many parts of the world, according to The Institute of Chartered Accountants in England and Wales (ICAEW).

Its Economic Insight: Middle East Q4 2015 report said Gulf nations can expect continued strong, if slightly slower, growth going into 2016 but further spending reforms will likely be needed to strengthen fiscal positions.

ICAEW said lower oil prices are significantly changing public spending patterns across the region and households and businesses should brace themselves for fewer giveaways.

A combination of diversification and drawing on financial reserves will allow oil-exporting GCC countries to continue their economic growth plans in the short term, it said.

However, strong performance down the line will require reconsideration of both public spending priorities and sources of government revenue, it added.

The Bahraini Government no longer subsidises meat prices and similar measures are being implemented for fuel, electricity and water.

The UAE has also eliminated fuel subsidies. Qatar has no immediate plans to either reduce subsidies or cancel funding of state-backed projects.

Nina Skero, ICAEW economic adviser, said: "Given the unforeseen extent of the fall in government revenue, it will be difficult for oil exporting countries to stick to their current obligations.

"Further public spending reforms are likely to be necessary but, if this transition is handled in a timely and gradual manner, strong economic growth across the GCC should continue."

With the US Fed preparing to raise interest rates in the coming months, maintaining currency pegs is likely to be more difficult for GCC countries, Skero said.

Large sovereign wealth funds and trade surpluses mean GCC countries are better positioned to withstand monetary policy tightening in the US but any significant interest rate gaps will leave GCC countries vulnerable to destabilising capital flows, she added.

The slowdown in the Chinese economy at a faster-than-anticipated rate also poses challenges to commodity-exporting GCC nations, according to the ICAEW which said in 2013, nearly 12 percent of Middle Eastern exports were sold to China.

Michael Armstrong, ICAEW regional director for the Middle East, Africa and South Asia, said: "It has been a tumultuous year for the global economy, and the GCC countries are not immune from these pressures.

"Global growth forecasts have been cut, but the economic diversification strategies of the GCC governments should see the Gulf States weather the slowdown better than other parts of the world. However they will need to continue to review sources of revenue and reassess their spending priorities."

Source: Arabian Business


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