More reforms are needed to achieve economic diversification and improve competitiveness
Riyadh, August 4, 2021- After a year of economic distress, the economies of the Gulf Cooperation Council (GCC) are expected to regain overall growth of 2.2% in 2021, according to the latest issue of the World Bank‘s Gulf Economic Update (GEU) titled “COVID-19 Pandemic and the Path to Diversification”. This growth is driven by the global economic recovery, projected at 5.6% and the recovery in global oil demand and international oil prices.
The COVID-19 pandemic and declining global oil demand and prices have inflicted a health crisis on GCC countries and a shock in commodity markets causing GDP to contract 4.8% in 2020.
However, most fiscal deficits are expected to persist over the forecast period. The three countries with the largest deficits in 2020 – Kuwait, Bahrain and Oman – are expected to remain in deficit throughout 2021-2023, but at narrower ratios to GDP in 2023 than during the economic downturn of 2020.
Reductions in oil supply and the average price of oil, the lowest in four years at US $ 41.30 per barrel, reduced the group’s exports of goods and services by 8.1%, according to the GEU. in real terms and transformed the current account surplus from 6.8% of GDP in 2019 to 2.9% of GDP deficit in 2020.
Non-oil GDP is proportionately larger today in all GCC countries than it was 10-20 years ago, but there is still a long way to go. Many still rely heavily on oil and gas exports, which account for over 70% of total merchandise exports to Kuwait, Qatar, Saudi Arabia and Oman, and on oil revenues, which exceed 70% of total government revenue in the country. Kuwait, Qatar, Oman, and Bahrain.
“While the GCC did a lot last year to contain the effects of the pandemic on their economy, including getting vaccines early on, they must continue to reform their public sector finances,”” noted Issam Abousleiman, World Bank Regional Director for GCC Countries. “The region needs to strengthen its competition policies to reap the benefits of telecommunications and the digitization of economic activity.“
The sixth issue of the GEU focuses on tax revenue and structural reforms, including strategic investments in digitization and telecommunications, which can help enable greater economic diversification.
Promoting private sector development remains at the heart of national and regional economic diversification efforts. The GCC only managed to close two SOE privatization deals and just two public-private partnership (PPP) agreements in 2020, but it has been a tough year for trade and investment everywhere.
Additionally, advancing the telecommunications frontier is a strategic investment area for diversification and post-COVID-19 recovery, which will serve the GCC well. Past investments in the sector have given the GCC considerable benefits during the pandemic, as quarantines, closures and restrictions have forced public health surveillance, wholesale and retail trade, public and private education, banking and financial services; and private and government office work on digital channels. Strategic investments in advanced telecommunications technologies, including 5G, are underway in the GCC. But beyond investment spending on infrastructure, the telecommunications sector would benefit greatly from improvements in the legal, regulatory and competitive frameworks in which service providers operate.
Perspectives from GCC countries
Bahrain: Bahrain will continue to rely on fiscal support measures in 2021 to overcome the economic contraction in 2020. GDP growth is expected to reach 3.3% in 2021 and remain at the same pace over the medium term.
Kuwait: Oil exports will continue to boost Kuwait’s growth momentum. Economic growth is expected to rebound to a moderate level of 2.4% in 2021, before recovering to 3.2% on average in 2022-2023.
Oman: Oman’s economy is expected to recover in 2021, but at a moderate growth rate of 2.5% as a major infrastructure investment program gathers momentum. Medium-term growth is expected to average 5.3% over the forecast period.
Qatar: Qatar is expected to post a strong rebound in growth, with LNG demand in South and East Asia supporting the medium-term outlook. Qatar’s economy is expected to grow 3% in 2021 before accelerating to 4.1% in 2022 and 4.5% in 2023.
Saudi Arabia: Firming global oil demand will support Saudi Arabia’s economic recovery in 2021, with GDP growth expected to reach 2.4% in 2021. Medium-term growth is expected to average 3% over the period. forecast.
United Arab Emirates: The United Arab Emirates is expected to return to growth in 2021, estimated at 1.2%, before accelerating to 2.5% in 2022 and 2023 thanks to government spending and the organization of Expo 2020 in October 2021.