GCC countries budget surplus in 2022 narrowed sharply in 2023, Saudi, Bahrain, Kuwait may face deficits

Qatar may record budget surplus in the current financial year, Emirates NBD said and noted GCC governments will need to rein in spending growth to prevent budget balances shrinking further as little rebound in oil revenues is expected in 2024.

Qatar’s general budget for 2024 approved last month expects revenue of QR202bn and expenditure of QR200.9bn and forecasts a deficit of QR6.2bn.

According to the banking group, the budget surpluses enjoyed in 2022 (by GCC countries) narrowed sharply last year on oil production cuts and lower oil prices, while spending increased.

“We expect Saudi Arabia to run a deficit of -4.3% of GDP this year, up from -1.9% in 2023, as ambitious development plans will require continued investment spending. Bahrain and Kuwait are also likely to run small deficits this year, but Oman, the UAE and Qatar are expected to record surpluses.

“Overall, sovereign balance sheets in the GCC are much stronger than a few years ago, with lower public debt and healthy FX reserves, which should allow governments to tap capital markets at attractive rates, if needed,” Emirates NBD said.

In 2024, global growth is expected to slow slightly to 2.9% from 3% in 2023 as tight monetary policy continues to weigh on demand and investment, particularly in the first half of the year.

This scenario is consistent with softer demand for oil, particularly in the advanced economies, and oil GDP growth in the GCC will remain a drag on headline GDP growth in 2024.

“We expect oil prices to average $82.5/barrel this year, similar to 2023,” Emirates NBD said.

However, the researcher thinks non-oil growth will remain relatively robust, averaging 3.6% across the GCC in 2024, underpinned by continued investment as oil exporting countries push ahead with ambitious economic diversification programmes.

While government expenditure growth will likely be more modest in 2024 than over the last couple of years, it does not expect governments to cut spending or tighten fiscal policy through higher taxes (other than those already announced such as the UAE’s corporate income tax, which came into effect in mid-2023).

In addition, economic and social reforms are likely to support continued private sector investment, and growth in the expatriate population particularly in Saudi Arabia and the UAE.

Rate cuts from the US Federal Reserve, expected in H2, 2024, should also boost demand for credit and support investment and consumption.

Finally, tourism is expected to remain a key driver of economic growth in the region in 2024 (and beyond), with the return of visitors from China and the growth of the Saudi tourism sector off its relatively low base.

Inflation slowed to an average 2.8% in the GCC (weighted by nominal GDP) from 3.5% in 2022. Lower fuel, food and services inflation were offset in the UAE and Saudi Arabia by rising housing costs.

“We expect the disinflation trend to continue in 2024, with average CPI inflation for the region forecast at 2.6% this year,” Emirates NBD noted.