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Dr. Robert Mogielnicki
Senior Resident Scholar, Arab Gulf States Institute in Washington
Sept. 6, 2022
Governments in Gulf Cooperation Council (GCC) member states are in strong fiscal positions owing to elevated energy prices. Most regional states are poised to enjoy their first annual budget surplus in several years. Having recently emerged from the coronavirus-induced economic downturn, all GCC states will be cautious in their spending, preferring to double down on existing initiatives, strategies and projects.
The utilization of newfound financial resources will range from boring and practical (Oman and Bahrain) to slightly more experimental and riskier (Saudi Arabia and the UAE). Spending increases will be targeted, such as policies to ease inflationary pressure. Much of the surplus revenue will flow to or through sovereign wealth funds, while the digital economy and technology-oriented initiatives are likely to serve as key destinations for newfound financial resources.
Scenario 1: Gulf governments stick closely to their conservative 2022 budgets and stash away surpluses in rainy day funds for future generations.
Scenario 2: Gulf governments shower generous financial incentives upon their citizens and boost spending across many segments of their economy.
Conservative planning for 2022 budgets and a continuation of elevated energy prices will enable GCC countries to enjoy substantial budget surpluses this year. Most spending increases this year will be narrow in scope and targeted to address specific issues such as inflation or high-priority development projects. Countries with weaker fiscal capacity, such as Oman and Bahrain, are opting to reduce economic vulnerabilities by managing high government debt and replenishing savings. Kuwait must likewise reserve financial resources to ensure fiscal maneuverability amid political paralysis and constraints on decision-making.
Government surpluses in Saudi Arabia and the UAE will flow through defined institutional channels initially but are likely to be redirected toward ambitious development projects and other initiatives intended to enhance the livability and investment climate of each country. In July, MBS announced THE LINE, a new iteration of one component of Neom, as well as the creation of an $80 billion fund to help finance the megaproject. Beyond its existing gas production expansion plans, Qatar must identify niche, investable economic areas wherein it can compete against larger neighbors.
Despite varying levels of surplus revenues expected, all GCC governments are likely to deploy a greater share of resources toward their digital economies, technology-oriented industries and initiatives with strong technology components. Regional officials view investments in the digital economy and hi-tech initiatives as worthwhile in both good and bad economic times. In August, G42 — a UAE-based AI and cloud computing company backed by Mubadala Investment Co. — launched a $10 billion technology growth fund in partnership with the Abu Dhabi Growth Fund to focus on technology investments in emerging markets.
Dr. Robert Mogielnicki’s professional affiliations span top-tier research institutes, academic institutions, NGOs and consultancies. He is a Senior Resident Scholar at the Arab Gulf States Institute as well as an Adjunct Assistant Professor at Georgetown University and a Professorial Lecturer at George Washington University. He serves as an Adviser with Freedom House and an External Consultant with Eurasia Group. Dr. Mogielnicki is the author of “A Political Economy of Free Zones in Gulf Arab States” (Palgrave Macmillan 2021), and he is currently working on an edited volume about the political economy of sovereign wealth funds in the Middle East and Asia. He is a Term Member at the Council on Foreign Relations and a member of the Board of Advisers at Henley & Partners, an investment migration firm. The Middle East Policy Council listed Dr. Mogielnicki in their inaugural 40 Under 40 awards for influential Middle East experts. He holds a DPhil from Magdalen College, University of Oxford.
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