Regional GDP expected to contract 7.1 per cent in 2020
The Washington-based IMF announced further cuts to its outlook for the GCC, projecting a GDP reduction of 7.1 per cent for 2020, with the region expected to rebound to 2.1 per cent in 2021.
Non-oil growth is expected to contract by 7.6 per cent in 2020 in the GCC, with growth of 3 per cent expected next year.
The revisions to the outlook follow the IMF’s April estimates that growth in GCC countries would contract by 2.7 per cent this year, with non-oil activity to drop by 4.3 per cent.
Opec+ to relax production cuts from August
The alliance of Saudi Arabia-led Opec and a group of 10 non-Opec oil producers led by Russia have agreed to ease production cuts this month as global oil demand starts to recover and prices bounce back.
The Opec+ alliance has agreed to reduce production cuts from 9.7 million barrels a day (b/d) to 7.7 million b/d from August. The decision is in line with a landmark agreement reached on 12 April to gradually relax oil output cuts.
Countries that did not meet their May and June quota limits are expected to reduce their outputs further from August to compensate.
Debt projected to balloon in the Gulf amid Covid-19 pandemic
GCC governments could note a record $100bn growth in debt this year amid the slump in oil prices and the impact of Covid-19, says US ratings agency S&P.
Central government deficits are expected to reach $490bn between 2020 and 2023, S&P said, adding: “Based on our macroeconomic assumptions, we expect to see GCC government balance sheets continue to deteriorate until 2023.”
Saudi Arabia’s deficit makes up the majority of the GCC fiscal deficit in nominal terms, but Kuwait has the highest central government deficit-to-GDP ratio of 39 per cent.
Regional deficits are expected to start shrinking from 2021 assuming oil price recovery and market stabilisation.
Government eyes up to $16bn in debt financing
Kuwait reportedly plans to issue KD4-5bn ($13-16bn) in public debt by the end of its fiscal year in March 2021 if its parliament approves a law that would allow the government to pursue international debt markets.
The law was discussed by a parliamentary committee in July and could allow Kuwait to borrow KD20bn over 30 years to boost state finances.
Government plans to raise debt come as Kuwait’s General Reserve Fund (GRF) is depleted amid efforts to plug the budget deficit. Reuters reported that Kuwait has already depleted the cash in the GRF.
The Washington-based IMF says Kuwait’s deficit could exceed 11 per cent of GDP this year.
The Kuwaiti Finance Ministry has also proposed the sale of KD2.2bn-worth of the GRF’s assets to the Future Generations Fund, Kuwait’s much larger sovereign wealth fund, to which the government assigns 10 per cent of its budget each year.
Emergency budgetary injection approved to tackle pandemic
Bahrain’s King Hamad bin Isa al-Khalifa last month issued a decree to inject BD177.3m ($470.4m) into the state budget for 2020.
The emergency funding is planned to meet emergency expenditures incurred amid the Covid-19 pandemic.
King Hamad also issued a decree stating that the deduction from oil revenues earmarked for the Future Generation Reserve Fund (FGRF) will be suspended until the end of 2020. A one-off transaction of BD169.6m ($450m) will be withdrawn from the FGRF to support the state budget for this year.
Manama’s decision came after it cut budgeted expenditure for 2020 by 30 per cent in April, when the cabinet also agreed to reschedule construction projects to free up funding for Covid-19 efforts.
Leaders of Saudi Arabia and Kuwait hospitalised
Saudi Arabia’s King Salman bin Abdulaziz al-Saud, 84, was hospitalised for medical tests last month. A royal court statement said the leader had entered King Faisal Specialist Hospital in Riyadh due to cholecystitis, defined as inflammation of the gall bladder.
News of King Salman’s hospital visit came after Kuwaiti Emir Sheikh Sabah al-Ahmad al-Jaber al-Sabah, 91, was admitted to hospital on 18 July.
Crown Prince Sheikh Nawaf al-Ahmad al-Jaber al-Sabah temporarily took over some key responsibilities from the emir, who later travelled to the US for further medical treatment following surgery.
Egypt approves defensive troop deployment
Egypt’s parliament last month approved the deployment of troops outside the country after President Abdul Fattah el-Sisi threatened military action against Turkish-backed forces in Libya.
The parliament approved the deployment to secure itself “against criminal armed militias and foreign terrorist elements”.
El-Sisi had previously warned that Egypt would take action if there was a threat to national security from its western neighbour.
Cairo has in recent years backed commander Khalifa Haftar, who is the leader of the military forces in eastern Libya.
Prime minister’s resignation risks political crisis
Tunisian Prime Minister Elyes Fakhfakh presented his resignation to President Kais Saied on 15 July amid growing momentum in parliament to oust Fakhfakh over an alleged conflict of interest that he denies. Fakhfakh’s government has collapsed less than five months after it was formed and has raised concerns about delays to economic reforms and efforts to manage Covid-19 in the country.
President Saied must now name a new prime minister to replace Fakhfakh, who will remain in office until the handover. An election is likely if the new candidate is not approved by parliament.
Government reforms to cut debt get under way
Structural reforms are being accelerated in Oman after Sultan Haitham bin Tariq al-Said pledged to reduce public debt following his appointment in January.
The newly formed Oman Investment Authority (OIA) restructured the boards of 15 government companies last month to ensure they operate “with proper governance procedures and a national agenda”, which OIA will supervise.
The ownership of the Sultan Qaboos Port project was also transferred to Omran Group in July. The state-backed tourism developer will take over Port In-vestment’s 70 per cent stake in the project.
Progress was also made last month on Oman’s decision to levy 5 per cent VAT from January 2021. The sultanate’s Majlis al-Shura referred the draft VAT law to the state council in July.
The new Bankruptcy Law in Oman, which provides three restructuring options for insolvent businesses, also came into force last month.
> The government of Saudi Arabia said in July that the issue of implementing income tax was not up for discussion. Riyadh’s clarification was issued after reports emerged that Saudi Arabia was not “ruling anything away for now” as it sought to bolster its coffers amid the slump in oil prices.
> Saudi Arabia-based Qiddiya Investment Company has awarded the local Shibh al-Jazira Contracting Company a SR700m ($186.7m) roadworks contract, covering 45 kilometres of roads, seven bridges and grade-separated interchanges at the lower plateau area of the 334 square-km Qiddiya project site.
> The UK’s Intellectual Property Office has granted Dubai Electricity & Water Authority a patent for a system to measure atmospheric attenuation. The system identifies the best locations for solar towers and heliostats in concentrated solar power projects using a drone and an autonomous vehicle.
> Iraq has finalised all logistical procedures needed to resume exporting oil to Jordan, according to Jordanian Energy Minister Hala Zawati. The countries agreed on the resumption of exports of Iraqi oil to Jordan’s refinery in Zarqa. Iraq had stopped daily supplies of crude by overland trucks to Jordan for more than two weeks citing low oil prices.
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