Fiscal expansion is forecasted to continue in the GCC in 2020, although spending is expected to decline marginally as compared to 2019 to reach $603.7bn. For the region, budget deficit is forecasted to increase from $39.7bn in 2019 (-2.4 percent of GDP) to $54.7bn (-3.3 percent of GDP) in 2020. The higher deficit in 2020 despite sequentially lower budget expenditure in the region is mainly ascribed to lower revenues of $549bn in 2020, from lower oil output, KAMCO Research noted yesterday, citing IMF data.
Nevertheless, GCC governments will continue to focus on expenditure efficiencies and improving their management of fiscal risks. The drop-in oil production is expected to drive lower current account surplus for the GCC in 2020, as the region’s current account surplus is expected to come in at around 3.3 percent of GDP.
The KAMCO analysts noted Qatar reported a fiscal surplus of QR6.82bn in Q2-19 after posting fiscal surplus of QR2.0bn in Q1-19. The surplus in Q2- 19 came from a 3.9 percent q-o-q increase in revenues, and was aided by lower expenditure, as expenses went down by 5.0 percent q-o-q over the same period.
Q2-19 fiscal surplus came in at 4.2 percent of GDP in Q2-19. Total credit facilities as of October 19 reached record high levels and improved by 0.8 percent from the end of 2018 to reach QR1 trillion.
Qatar’s Public sector credit growth moved up and improved by 0.7 percent from Q1-19, while the Private sector credit dropped by 15 percent over the period, as per data from the Central Bank of Qatar.
Money supply (M2) at the end of October 2019 remained broadly stable from Q2-19 and decreased by 3.7 percent from Q1-19 to reach QR554.9bn. Time and savings deposits however improved by 3.6 in October 2019 from Q2-19, while M1 receded by 4.0 percent over the same period.
Deposits in foreign currencies decreased by 3.6 percent over the first ten months of 2019. Inflation trends at the end of October 2019 were slightly weaker as compared to Q2-19, as the general CPI index declined by 0.8 percent over the period. Separately, the QCB’s monthly Real Estate Price index decreased to 227.33 in September 2019 from 238.94 in June 2019. When compared with June 2018, the index was down 18.21 points from 245.54 points.
KAMCO Research believes that GCC countries are comfortably placed in terms of funding their fiscal spending and deficits, via a combination of debt issuances - both conventional and sukuks, options of privatization, listing and partial sale of state-owned assets and their ample FX reserves.
Further interest rates are expected to remain accommodative in the GCC, as GCC currencies are either pegged or loosely pegged to the USD, which should leave the bond market route open for future debt issues, if necessary.
However, oil market stability will remain necessary for securing more progress for the region’s diversification efforts and further non-oil economic growth.
