The GCC region’s non-oil growth is expected to pick-up 2.4 percent in 2017 and 3.2 percent in 2018 due to easing of fiscal consolidation and the modest recovery in oil prices. However, overall growth in the six GCC countries are expected to slow further from 2 percent in 2016 to 1.6 percent in 2017, reflecting the decrease in oil production following the November 2016 Opec agreement, Institute of International Finance (IFF) has noted.
The GCC has responded to the sharp deterioration in fiscal accounts by launching much-needed fiscal reforms. The sizeable fiscal consolidation underway, combined with a gradual recovery in oil prices, should put fiscal positions on a more sustainable footing.
With average oil prices expected at $52/bbl this year, up 16 percent from 2016, the consolidated fiscal deficit of the GCC is expected to narrow from $144bn in 2016 to $77bn in 2017, while the current account is projected to shift from a deficit of $43 bn to a small surplus.
“We expect that about half of the financing requirement will be met through domestic borrowing, a third by external borrowing, and the remainder by drawing down on foreign assets, although there is significant variation in financing strategies among the six countries.”, IFF analysts said.
The region’s foreign currency debt issuance has risen sharply. FX bond issuance reached $69bn in 2016, up from $22bn a year earlier. Sovereign FX debt issuance was about $40bn. Private non-resident capital flows to the GCC are expected to decrease to $96bn in 2017 from $114bn in 2016. IFF expects sovereign FX bond issuance to decline to $34bn due to lower financing needs in the GCC. Meanwhile, regional banks, accounting for 26 percent of FX debt issuance in 2016, are expected to continue tapping external funding to cope with tighter liquidity.
Corporate bond issuance remains limited, with firms largely dependent on bank finance. Equity inflows will remain small in 2017. Part of Saudi Arabia’s strategy to diversify its economy is the planned sale of an initial 5 percent stake in the state-owned oil giant Aramco in 2018. Resident capital outflows, which peaked at $384bn in 2013, dropped in 2015 and 2016.
In 2017, however, capital outflows are expected to increase from $54bn in 2016 to $94bn in 2017. One-fourth of these outflows are in the form of FDI abroad and three-fourths in the form of portfolio investment. Net foreign assets of the GCC countries are expected to remain stable at around $2.1 trillion in 2017.
