Deficit to surplus: GCC economies on growth track

The Gulf Cooperation Council (GCC) countries faced new economic challenges after the global oil prices fell due to the Corona pandemic. But they are back on track now. 

The combined current account balance of oil exporters in the GCC region will shift from a deficit of $6 billion in 2020 to surpluses of $165 billion in 2021 and $138 billion in 2022.

According to a report titled “The Pursuit of Lasting Recovery in a Fragile Environment” by the Institute of International Finance (IIF), the real GDP of GCC countries fell 4.9 percent in 2020 and is expected to rise 2.1 percent in 2021 and 4.6 percent in 2022 due to oil prices recovery and the fast response to Covid-19. 

While oil importers will face many economic obstacles, their GDP is expected to rise 2.7 percent in 2021 and 4.3 percent in 2022, after a decline of -1.9 percent in 2020.

In 2020, Lebanon had the highest rate of decrease (-26.2 percent) in its real GDP growth among all MENA countries but was expected to increase to 4.1 percent in 2022. 

Egypt was the only Arab country with a 1.6 percent increase in its real GDP in 2020.

A worrying factor, however, is the high unemployment rates in some countries, such as Saudi Arabia, Algeria and Iraq, averaging around 14 percent, with youth unemployment of 28 percent, which is considered the highest in the world.

Saudi Arabia leads

As per Saudi Arabia’s Vision 2030, the government has worked to diversify its economy away from relying solely on oil revenues while simultaneously bolstering other sectors. 

On the back of a rise in FDI from $5.4 billion in 2020 to $19.5 billion in 2021, non-resident inflows will rise to $62 billion in 2021. With additional spending on mega-projects, Saudi authorities expect the kingdom’s sovereign wealth fund PIF to raise its investment spending into the economy to $40 billion per year in fiscal years 2021 and 2022.

Saudi Arabia’s real GDP growth fell 4.1 in 2020 and is expected to increase to 1.9 percent this year and 4.8 percent in 2022. Furthermore, to achieve a budget balance by 2022, the fiscal deficit must be reduced from 11.2 percent to 1.6 percent of gross domestic product (GDP).

UAE GDP to rise by 4.9 percent in 2022

The UAE’s economy is expected to grow by 2.2 percent in 2021 and by 4.9 percent in 2022, with support from tourism and oil prices recovery and Expo 2020 activities. The banking sector will remain adequately capitalized, with a 16.4 percent Tier 1 ratio. 

While the 2020 consolidated fiscal deficit of 7.1 percent of GDP will be replaced by surpluses of around 1 percent in 2021 and 2022. IIF expected FDI inflows to rise further from $20 billion in 2020 to $22 billion in 2021, while the UAE’s gross public foreign assets (official reserves plus SWFs) will exceed $1 trillion, or 244 percent of GDP in 2022.

Other countries

Egypt: Real GDP rose 1.6 percent in 2020 and is expected to increase 3 percent in 2021 and 4.8 percent in 2022. While Core inflation fell to less than 4 percent year on year in September 2021, well below the target range. 

This could allow for some monetary policy easing. The banking system is still sound, with a Tier 1 capital ratio of 16.8 percent, and NPLs ratio of 3.5 percent in Q2 2021, and low funding risks.

Lebanon: Real GDP fell 26.2 percent in 2020 and is expected to decrease 8.3 percent in 2021 and rise to 4.1 percent in 2022. Lebanon has been facing a major economic crisis since the end of 2019 and is currently aiming to receive money from IMF and other countries as financial assistance and loans. Lebanon’s debt-to-GDP ratio will skyrocket to 300 percent of GDP. Tourism will recover gradually as it is not expected to return to pre-pandemic levels until 2023.

Oman: Real GDP decreased by 3.1 percent in 2020 and is expected to increase 2.2 percent in 2021 and 3.3 percent in 2022, aided by a significant increase in natural gas production and progress in vaccination. IIF expects the fiscal deficit to fall to 2.3 percent of GDP in 2021 and 1.3 percent in 2022, thanks to spending cuts, tax reforms, and increased revenue from oil and natural gas. In 2021, Oman’s government spending as a percentage of GDP was 42 percent, far higher than in most developing and emerging economies.

Qatar: Real GDP fell 3.7 percent in 2020 and will be increasing by 3.1 and 3.8 percent in 2021 and 2022, supported by the strengthening of oil and gas prices, the revival in domestic demand on the back of the progress made in vaccination, and the end of the three-year blockade by Saudi Arabia, the UAE, Egypt, and Bahrain.