Gulf budget gaps to further narrow in 2018 – Kuwait’s govt revenues increase to KD 13.3bn, oil revenues expected to stay at KD 11.7bn in 2017/18
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KUWAIT CITY, March 19: Budgets deficits for the GCC region in 2018 are forecasted to come in at $51bn, a 52 percent reduction from 2017 budget deficits ($107bn), based on our analysis of IMF’s general government fiscal balance estimates.
Expense optimization and reduction initiatives are key drivers for the lower budget gaps, while Saudi Arabia is expected to contribute to about 63 percent of the region’s budget deficits, despite lowering expenditure by 14.3 percent y-o-y.
Nevertheless, we forecast budget deficits to come in lower, as higher revenues are expected if oil prices were to stay at levels seen in Q1-2018 (above $60/bbl) for the rest of 2018. Current account balances in the GCC over 2017-2019 are estimated to move into surplus, albeit marginally, and is expected to average 0.3 percent of GDP over the period.
Inflation trends reported for Q4-2017 suggested that overall consumer prices grew across UAE, Kuwait and Qatar, as quarterly inflation ranged between 0.5 percent-1 percent, while Saudi Arabia and Bahrain witnessed lower CPI levels. Money supply (M2) growth for Q4-2017 was also broadly positive across UAE, Kuwait & Qatar with 1.5 percent-6.0 percent growth registered for the quarter. Credit disbursed across the GCC was mixed, as quarterly lending grew in UAE (0.4 percent), Qatar (1.8 percent), Bahrain (1.7 percent) and Oman (1.7 percent).
KAMCO Research expects a broader timeline for newer non-oil initiatives going forward
We expect initiatives to bolster the GCC non-oil economy to continue; but be less synchronized than the previous years, as individual GCC countries are likely to use different fiscal tools to shore up their state finances. A case in point is the introduction of VAT in the UAE and Saudi Arabia, while other GCC countries are yet to implement VAT measures, even as the IMF estimates VAT to generate additional revenue in the range of 1.5 percent-3 percent of region’s non-oil GDP. Other independent revenue measures include excise taxes implemented in the UAE & Saudi Arabia in 2017, higher fees introduced for government services and taxes on vacant lands introduced in Saudi Arabia, while other countries prepare to implement business profit tax reforms. Leading indicators for the non-oil economy in 2018 still remain healthy in our view, as purchasing manager indices (PMI) for Saudi Arabia and UAE show expansion, while the IMF estimates a real non-oil GDP of 2.4 percent for the current year. Timelines and newer initiatives will hinge on oil price signaling from OPEC production cuts beyond Dec-2018, in our view.
Kuwait
Total government revenues for Kuwait in 2017/18 is estimated to increase and grow to KD 13.3bn from KD 13.1bn in 2016/17, as per the Ministry of Finance. The growth is ascribed to non-oil revenues, which is estimated to grow from KD 1.4bn in 2016/17 to KD 1.6bn in 2017/18, while oil revenues are expected to stay stable at KD 11.7bn over both fiscal years. On the other hand, expenditure also grew from KD 17.7bn in 2016/17 to KD 19.9 in 2017/18, as capital expenditures, subsidies and salaries & wages grew in the current fiscal year.
Government finances are estimated to stay in the negative over 2017/18, however the Ministry of Finance expects an improvement in the next fiscal year. In 2018/19, the deficit is expected to be lower by 23.7 percent, before contribution to FGF (Future Generations Fund). Higher oil revenues (+13.7 percent) and non-oil revenues (+8.5 percent) are key drivers for the y-o-y improvement in 2018/19, despite the marginally higher expenditure (+0.5 percent) in the fiscal year.
Credit facilities extended by Kuwaiti banks by the end of Q4-2017 decreased by 1.2 percent q-o-q to KD 35.4bn. On a y-o-y basis however, credit extended improved by 3.2 percent, driven by the growth in Personal facilities, which grew by 4.4 percent over the period and accounted for over 43 percent of the credit disbursed by December-2017. Credit to the construction sector however declined on a y-o-y basis, as credit disbursed by the sector went down by 11.1 percent, while the real estate sector witnessed a 2.7 percent growth in credit disbursed.
Kuwait’s broad measure of money supply (M2) jumped by 1.6 percent q-o-q to KD 37.1bn in Q4-2017, after remaining broadly stable in Q3-2017 (+0.2 percent), as Q4-2017 growth was driven by an 8 percent q-o-q growth in currency in circulation.
Saudi Arabia
Preliminary data released by General Authority of Statistics shows that GDP for 2017 grew by 6.0 percent y-o-y to SAR 2.56 trillion. Oil-GDP was the main driver of growth, as it grew by 18.5 percent y-o-y to SAR 0.71 trillion, while non-oil GDP which now accounts for 71.4 percent of the total GDP grew by 1.9 percent y-o-y. Both the Government sector and the Private sector grew within the non-oil sector by 4.5 percent and 0.7 percent respectively. The private sector now contributes to 67.5 percent of non-oil GDP. PMI data published by Emirates NBD for Feb-2018 grew marginally from 53.0 in Jan-2018 to 53.2 in Feb-2018, but was down 7.2 percent from Dec-2017 (57.3).
The broad measure of money supply (M2) in the Kingdom remained stable q-o-q during Q4-2017 and reached SAR 1,620bn, after declining by 1.6 percent in Q3-2017. However, on a y-o-y basis, money supply (M2) declined by 1 percent, as the decline in money supply was driven by an 8.9 percent decrease in time & savings deposits y-o-y, while currency outside banks and demand deposits improved by 1 percent and 2.7 percent respectively over the same period.
During Q4-2017, inflation went down as compared to last quarter. The general consumer price index dipped by 0.95 percent in Q4-2017, as compared to Q3-2017. Among the components, Education was the only sector that saw price levels increase during Q4-2017, registering a quarterly increase in prices of 0.6 percent, while discretionary spending was the main component that declined q-o-q. Clothing & Footwear and Furnishings, household equipment & maintenance were the two sectors within discretionary spending declined by 4.1 percent q-o-q and 3.2 percent q-o-q respectively. Credit disbursed receded by 2 percent q-o-q to reach SAR 1,387bn in Q4-2017, dragged down by Building & Construction and Agriculture & Fishing sectors which saw their credit lines plunge by 15 percent and 16 percent q-o-q respectively.
United Arab Emirates
The Central Bank of the UAE revised its estimate of the Real GDP growth for 2017 to 1.5 percent with non-oil GDP estimated to have grown by 2.9 percent, while oil GDP growth declined by 1.4 percent. The real oil-GDP is expected to continue its decline, receding by 0.2 percent y-o-y in 2018 as per the Central Bank’s estimation, while non-oil GDP, driven by government spending is expected to rise by 3.6 percent y-o-y, and contribute to over real GDP growing by 2.5 percent y-o-y.
Data for Dec-2017 from the Emirates NBD Economy Tracker saw the index slip to 55.1, its lowest reading since Sept-2017, driven by slower growth in output/business activity last month. While output growth was reportedly the weakest since May-2017, new order increased sharply, despite weak export order growth, which signals strong domestic demand in the UAE. Nevertheless, for full year 2017, the headline index averaged 56.0 last year, higher than the 53.7 recorded in 2016 and the 54.7 recorded in 2015.
On the capital front, total credit facilities further improved to AED 1.45 trillion at the end of the Q4-2017, an increase of 0.4 percent q-o-q but a decline of 0.1 percent y-o-y. Main contributors for the q-o-q increase were Construction & Real Estate and Personal Loans for Consumption Purposes, as they improved by 1 percent and 0.6 percent respectively. Components which declined included Financial Institutions and Personal Loans for Business Purposes as they declined by 2.1 percent and 5.7 percent q-o-q respectively. In terms of price levels, inflation grew by to 1.6 percent q-o-q in Q4-2017, as compared to a decline (-0.3 percent) witnessed in Q3-2017. Price levels in 2017, however remained higher compared to 2015 & 2016. UAE’s broad measure of money supply (M2) increased by 1.5 percent q-o-q to AED 1,276bn in Q4-2017.
Qatar
Qatar’s Q3-2017 GDP improved by 3.9 percent q-o-q, as oil & gas related sectors went up by 8.1 percent over the same period. The non-oil sector grew by 1.9 percent q-o-q, as the private sector grew by 2.5 percent on a q-o-q basis. Non-oil Government sector GDP declined marginally (-0.4 percent) q-o-q in Q3-2017. As per Qatar National Strategy for 2018-22, the government expects to run the small fiscal surpluses during the period and forecasts a GDP growth of between 2.1 percent and 3.0 percent reportedly with investment into the private sector to be higher to compensate the slower growth in the oil & gas economy.
Total credit facilities continued the uptrend and stood at a record high level at the end of Q4-2017, with an increase of 1.8 percent q-o-q to reach QAR 911bn as of Dec-2017. The growth was ascribed to both the public sector and the private sector, which grew q-o-q in Q4-2017, as the public sector grew by 3.9 percent, while the private sector credit went up by 1.6 percent as against the previous quarter. Within the private sector, large sectors utilizing credit — real estate and consumption, recorded mixed trends in lending. Real Estate credit increased by 4.5 percent q-o-q in Q4-2017, and grew by 13.2 percent y-o-y, while Consumption credit declined by 0.1 percent on a quarterly basis, but went up by 2.9 percent y-o-y as compared to Q3-2017.
Qatar’s broad measure of money supply (M2) went up on a q-o-q basis, to gain around QAR 38.5bn or 6.8 percent in Q4-2017 and stand at around QAR 603bn as of Dec-2017. The jump in M2 is mainly attributed to the increase in Deposits in Foreign Currencies, which went up by QAR 33.6bn, growing by 18 percent on a quarterly basis in Q4-2017. Quarterly inflation inched up marginally during Q4-2017 q-o-q by 0.5 percent, ascribed to a 2.6 percent increase in Transport costs as compared to Q3-2017. Housing & related utilities prices declined by 0.8 percent, while Food & Beverage prices went down by 0.5 percent q-o-q. Most other components improved marginally on a q-o-q basis.
Bahrain
Bahrain’s budget deficit for 2017 is estimated to come in at BHD 1.34bn, as per the Ministry of Finance, as public expenditure remained high and increased by 1 percent to BHD 3.58bn, despite a public revenue growth of 18 percent y-o-y to reach BHD 2.24bn. The budget deficit is expected to narrow only marginally in 2018, as per the Ministry of Finance, and reach BHD 1.32bn, as public expenditure increases by 3 percent y-o-y to reach BHD 3.69bn, while public revenues improve by 6 percent to BHD 2.37bn. Of the total public revenues for 2018, over 75 percent is attributed to oil revenues at BHD 1.8bn.
The Bahrain Economic Development Board expects Real GDP to grow by 3.3 percent y-o-y in 2018 and 2.9 percent in 2019, driven by a non-hydrocarbon sector growth of 4.1 percent and 3.5 percent for the respective years. Money supply (M2) at the end of the third quarter in 2017 decreased by 0.2 percent q-o-q to OMR 10.4bn as compared to a sequential improvement of 0.2 percent in Q2-2016. Time and savings deposits grew by 2.2 percent q-o-q in Q3-2017, whereas M1 receded by 5.1 percent q-o-q over the same period.
Credit disbursed to non-government sector increased 1.7 percent q-o-q and 4.9 percent y-o-y to reach BHD 8.2bn in Q3-2017. Personal credit however declined, as credit receded by 1.1 percent q-o-q, while Construction & Manufacturing credit improved by 5.2 percent and 10.6 percent respectively. Further, inflation numbers at the end of Q3-2017 suggested a sequential decline of 0.6 percent as against Q2-2017. On a y-o-y basis, CPI marginally increased 0.2 percent by the end of Sept-2017.
Oman
Oman continued to report a budget deficit in 2017, but the deficit was lower by 52 percent y-o-y, and came in at OMR 3.3bn as compared to a deficit of OMR 6.8bn during 2016. Government’s total revenues improved during 2017 by 4.8 percent y-o-y to stand at OMR 7.97bn, while the Q4-2017 estimate improved by 1.2 percent on a y-o-y basis. The increase was due to higher oil revenues in 2017 as it increased by 23.8 percent y-o-y, as average oil prices increased in 2017, while other non-oil revenues declined by 18.8 percent y-o-y. However, gas revenues declined by 2.9 percent y-o-y. On the other hand, government expenditure decreased on a y-o-y basis in 2017 by 21.3 percent, to OMR 11.2bn from OMR 14.3bn in 2016.
On the monetary front, money supply (M2) at the end of the fourth quarter in 2017 decreased by 0.3 percent q-o-q to OMR 16.0bn, as declining trends continued on a sequential basis from Q3-2017 (0.1 percent). Quasi money that accounted for a 69 percent of M2 increased by 0.5 percent q-o-q at the end of Q4-2017 to OMR 11.1bn, whereas the more liquid M1 receded by 1.9 percent to OMR 4.9bn after a decline during Q3-2017. The decline in Q4-2017 was largely attributed to the 2.1 percent decrease on a q-o-q basis in demand deposits to OMR 3.7bn, while currency outside banks declined 1.3 percent q-o-q to reach OMR 1.3bn as against the previous quarter.
Meanwhile, inflation trends remained stable on a quarterly basis during Q4-2017, after improving by 0.6 percent q-o-q in Q3-2017. In terms of credit lending, total amount of credit disbursed went up by 1.7 percent during Q4-2017 as compared to growth of 0.4 percent during Q3-2017, primarily on the back of higher Services credit that increased by 10.1 percent q-o-q to reach OMR 1.9bn. Transport & Communication also grew, as credit disbursed to the sector grew by 19.7 percent q-o-q for the fourth quarter of 2017.
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