Bahrain and Oman need to do more to ease the fiscal squeeze
The IMF has urged the countries to deepen reforms to alleviate pressure on their economies
Significant economic reform is becoming increasingly essential for the countries of the Arabian Gulf, with high oil revenues seemingly a thing of the past. Nowhere is that need for reform more evident in Oman and Bahrain.
As the two Arabian Gulf countries with the lowest financial buffers, they face greater challenges in addressing issues such as lowering their fiscal deficits. The IMF yesterday singled out the two countries within the region that urgently need to do more – and quickly – to reduce their debt piles.
The IMF is not the only institution to sound the alarm over the two countries’ finances.
The credit rating agency Moody’s Investors Service, which earlier this year downgraded both Oman and Bahrain’s sovereign ratings, has issued stark forecasts.
The agency is projecting Oman’s fiscal deficit, which reached 18.7 per cent of GDP in 2016, will average 9 per cent of GDP until 2020, despite the country’s fiscal consolidation efforts.
Meanwhile, the country’s debt ratio, which reached about 30 per cent of GDP at the end of last year from
less than 5 per cent before the 2014 oil price decline,
is forecast to rise to more than 50 per cent of GDP
Although Oman has not been complacent about the situation – it has raised and broadened the corporate tax rate and increased taxes on LNG and petrochemicals – the country has so far failed to adequately cut its current spending, notably its military expenditure, which is one of the highest in the world as a share
The situation is more alarming in Bahrain, which is posting fiscal deficits of 18 per cent of GDP and are likely to remain in double-digits in 2017 and 2018, according to Moody’s.
The country’s government debt-to-GDP ratio rose to more than 73 per cent last year from 62 per cent in 2015, and is forecast to surpass 100 per cent by 2020.
With prospects of further interest rates hikes in the United States, which will be mimicked in the dollar-pegged economies of Bahrain and Oman, the cost of financing such a deficit will only get higher.
Lower oil prices have changed the economic equation permanently for the countries of the Arabian Gulf, with Oman and Bahrain in particular at an important juncture.
Both countries need to seize the moment to balance their budgets with an acceleration of reforms, no matter how painful they may prove to be.
Updated: February 12, 2019 05:02 PM