New fiscal measures help Gulf nations weather pandemic storm

Gulf countries, including Bahrain, weathered the pandemic storm by taking a wide range of fiscal measures that have helped their economies, according to a latest report.

Higher oil prices coupled with business-friendly and social reforms that improved competitiveness helped the Middle Eastern countries return to growth last year, said an analysis by the Oxford Business Group (OBG) released yesterday.

It added that a number of governments launched and implemented long-term plans aimed at diversification and modernisation following the economic contractions faced in 2020.

Bahrain doubled the Value-Added Tax (VAT) rate to 10 per cent from Saturday, following in the footsteps of Saudi Arabia which increased its VAT to 15pc in 2020.

“The decision forms part of Bahrain’s strategy to bring the budget back to surplus by 2024,” said the report, ‘Middle East: Year in Review 2021’.

The Bahrain government is expected to net up to BD490 million through full VAT implementation, though a conservative estimate of VAT revenues for 2022 has been pegged at BD288m.

This comes as the government aims to reduce the total deficit expected for 2022 from BD1.112 billion to BD823.528m.

Oman introduced a 5pc VAT in April last year, becoming the fourth Gulf country to do so – after Saudi Arabia and the UAE (January 1, 2018) and Bahrain (January 1, 2019) – following the GCC’s pledge in 2016 to implement the surcharge.

“While the Covid-19 pandemic resulted in prolonging fiscal balance targets to beyond 2022, the (Bahrain) government’s discipline in curtailing expenditure raises expectations that it will narrow the fiscal deficit gap and achieve a fiscal balance in the coming years,” National Bank of Bahrain group chief strategy officer Yaser Alsharifi told OBG.

“Furthermore, amid the economic recovery trend in 2021 and a higher oil price environment, one could expect a robust economic performance in 2022, which will further support the government’s fiscal situation.”

The report cites International Monetary Fund (IMF) data which predicted in October that the region as a whole would expand by 2.7pc, and from the World Bank which estimated last month that the six-member bloc would record an aggregate growth rate of 2.6pc for the year.

“Bahrain is forecast to have grown by 3.5pc, followed by Qatar and Oman (3pc), the UAE (2.7pc), Saudi Arabia (2.4pc) and Kuwait (2pc), stated the findings that credited the rise in oil prices as a key factor in this growth.”

Oil prices started at just over $50 a barrel at the start of 2021, and went up to more than $85 in October.

Towards the end of the year prices fell again, however, as the Omicron variant of the coronavirus dampened fuel demand, before closing out 2021 at around $77 a barrel, the report added.

“Nevertheless, the earlier increase provided an economic boon to Gulf countries throughout much of the year,” OBG added.

Long-term fiscal reforms implemented by Gulf governments helped incentivise foreign investment, and Saudi Arabia emerged as the leader in this segment with its foreign direct investments (FDIs) already up 33pc year-on-year in the first six months of 2021, according to government officials, building on the pandemic-affected return of $5.5bn in 2020.

Elsewhere, the UAE has also implemented a number of eye-catching reforms to improve its competitiveness globally.

It amended laws to allow 100pc foreign ownership of Emirati companies in all but a few restricted sectors, up from the previous limit of 49pc.

This was followed in November by the largest legal reforms in the country’s history, when a slew of 40 laws covering trade, online security, copyright, residency, narcotics and other social issues was implemented.

Meanwhile, a series of social reforms, such as the easing of restrictions on cohabitation before marriage, the implementation of more protections for women and longer-term visas, were designed to attract skilled migrants to the country.

“These measures were then topped by the December announcement that government entities in the UAE would shift to a four-and-a-half-day week from January 1, 2022, with many private companies quickly following suit,” highlighted the report.

The change extended the weekend to run from Friday afternoon through until Sunday – instead of the previous Friday-Saturday schedule.

This puts the country in line with most of the world’s developed economies.

The findings back the Gulf country’s investment in the energy transition with the UAE announcing net-zero emissions target for 2050, while Saudi Arabia and Bahrain both hope to achieve this goal by 2060.

 

Source: https://www.gdnonline.com/Home/Details/1018877

 

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