August 9, 2016

Gulf Economic Barometer

The Gulf Economic Barometer monitors initiatives taken by Gulf states as they seek fiscal, monetary, and labor policy changes to meet the challenge of reduced state revenue from natural resources. The key trend is a reversal in fiscal expenditure, in a major shift in the way states in the GCC have been steadily increasing spending on public sector wages, infrastructure, and social services over the last decade. The information included here is neither official nor exhaustive. To send us additional information to include on the barometer, please email: info@agsiw.org.

Stay tuned as the policy environment evolves!

 

Fiscal Policy Measures

 

Fuel Subsidy Reduction
Tax IncreasesPublic Sector/GRE RestructuringElectricity, Water Subsidy Reduction
OmanDeregulated oil prices in January; Revised regular petrol will be about $0.39 (149 baisas) per litre in May (2.75% increase from April); In June, revised regular petrol will be about $0.44 (170 baisas) per litre, super graded will be about $0.46 (180 baisas) and diesel will be about $0.48 (185 baisas)
Outbound travelers through Oman’s airports will have to pay $5.19 (about 2 Omani rials) extra in tax starting July 1; In December, Shura Council voted to increase corporate tax by 3% (from 12-15% without discrimination); Government approved the corporate tax increase in JuneThe government has moved to find ways to reinstate over 1,500 Omanis who were laid off from contracting companies in Nov. 2015
Plans for 7-8% cut in electricity subsidies; Subsidies of electricity actually increased in 2015, a 42.8 percent rise from 2014
Saudi ArabiaA 5-year plan has been announced to raise the gasoline price by as much as 40%; Government released National Transformation Program on June 6
New land tax; No plan to introduce tax on income, capital, or basic goods; Government considering new income tax on expats
Employees at Binladin Group set fire to seven buses over not receiving salaries and repeated layoffs of more than 50,000 employees (nationals and expatriates) in April; Saudi Arabia planning to privatize postal system by early 2017; The Saudi Industrial Property Authority (MODON) signs 6,000 industrial, logistic and services contracts
King Salman fired the minister for electricity and water in April; There are aims to replace current subsidy regime where 70% of subsidies benefit the wealthy; Electricity prices will rise by varying amounts except for households with low electricity usage; Water bills have increased by 400-500% by some accounts
KuwaitUnder discussion; Cabinet approved increasing petrol prices by 41% for low-octane petrol and 83% for low emission petrol starting in Sept.Plans to impose 10% tax on company profits, 5% VAT, and proposed tax on money transfers by expatriates; Work permit charge raised from about $6.63 (2 Kuwait dinars) to $165.78 (50 Kuwait dinars) and its renewal from about $6.63 (2 Kuwait dinars) to $33.16 (10 Kuwait dinars)Reductions in staff (as much as 34%) at Kuwait Water and Electric Authority (see Market Watch); Kuwait Airways has reduced staff of 1,350 Kuwaiti nationals; Thousands of Kuwaiti oil and gas workers carried out three-day strike in April; Govt considers privatization of non-oil production units of Kuwait Petroleum Corporation in July
Parliament passed bill in April to raise water charges on foreign residents and on businesses but exempted citizens
Qatar30% increase in local gasoline prices since Jan.; Plans to scrap diesel and gasoline subsidies in May; Ministry of Energy and Industry announced gasoline prices have increased to about $0.36 (1.30 Qatari Rials) per litre for Super 97, $0.32 (1.15 Qatari Rials) per litre for Premium 90 and $0.38 (1.40 Qatari Rials) per litre for diesel; The price of petrol in Qatar will increase by 7 percent starting in July from QR 1.20 ($0.32) to QR 1.30 ($0.35) per litre; The cost of petrol in Qatar will rise by five dirhams a liter in August
Staff reductions at Qatar Rail, Qatar Petroleum; 1,000 expat layoffs in health sector; 500 Al Jazeera staffers were laid off; In June, Qatar Petroleum fired at least 1,500 foreign employees in a recent restructuring; Govt considering mandatory retirement age of 60 for expat workers
Increased the price of residential electricity and water and more than doubled the cost of postal services
United Arab EmiratesStill technically subsidized with board meeting monthly to adjust prices; Revised regular petrol will be about $0.48 (1.78 UAE dirhams) per litre (9.88% increase from April)
Abu Dhabi joins Dubai and Sharjah in implementing airport departure fee from July; UAE weighs tolls for federal highways in late June; In mid-July, Sharjah municipality increased tenancy attestation fee from 2% to 4%Emirates NBD laid off 300 expat staff in April, Emirates Islamic laid off close to 200 expat staff; Abu Dhabi’s National Oil Co will reduce its workforce by at least 5,000 by the end of 2016; In early July, National Bank of Abu Dhabi PJSC announced plans to  merge with rival First Gulf Bank PJSC; SWF’s IPIC and Mubadala to merge
UAE’s energy minister said in Jan., “We must remove remaining subsidies from electricity generation.”
BahrainRevised regular petrol was raised to about $0.33 (0.125 Bahraini dinars) per litre in Jan. (56.3% increase)
Proposal to introduce higher rates on traffic registration and inspections for expatriates and companies, impose fees on expatriate students at government schools, and new rates for unused plots of land and sewage usage
Bahrain business owners warn of massive local layoff in coming months
Plans to scrap water and electricity subsidies for both expats and big businesses

 

Monetary Policy Measures

 

Bond/Loan IssuesSWF Asset SalesCentral Bank FX SalesCurrency Peg
OmanMoody’s lowered Oman by two notches to A3 in Feb 2016; Standard & Poor’s lowered the country two notches to BBB-minus; first sukuk issued; Moody’s lowered Oman from A3 to Baa1 in May; In early June, Oman issued debt in the form of a $2.5 billion bond — its first debt issue in nearly 20 years;

In late June, state-owned Petroleum Development Oman obtained $4bn in loans from international banks
No change (under threat)
Saudi ArabiaStandard & Poor’s cut credit worthiness twice in less than six months to A-; Saudi government sold 5-, 7- and 10-year floating rate notes at the top end of the pricing guidance; Total of $9.19 billion (34.5bn Saudi Arabian rials) bond issues in the first three months of 2016; Plans to raise about $10 billion through a syndicated loan by early Sept.; Moody’s cut the country  from Aa3 to A1 in May, still investment grade
YesNo change (under threat)
KuwaitPlans to issue $6.6 billion (2 billion Kuwait dinars) equally between sukuk and conventional bonds in 2016; Kuwait making plans to issue sovereign bond
Kuwait Investment Authority (KIA) intends to sell its stake in nuclear group, ArevaNo change
QatarQatar’s Ahli Bank completed $500 million debut bond issue in April; In early May the government announced plans for a bond sale aiming to make up to $5 billion; On May 25 Qatar sold a $9 billion bond (in 3 maturities: 5, 10, and 30 years), surprising markets with the amount of investor interest No change
United Arab EmiratesAbu Dhabi state fund Mubadala aims to sell a $500 million (1.84 billion UAE dirhams), 7-year bond in late May; Investors lined up over $17 billion (62.4 billion UAE dirhams) for Abu Dhabi’s $5 billion bond issue; Last sold bonds in April 2009, selling $1.5 billion in 10-year securities; Government is considering setting up domestic bond market No change
BahrainStandard & Poor’s lowered Bahrain from BBB- to BB, and is now rated as junk; Government terminated $750 million bond sale of 5- and 10-year bonds in mid-Feb, only to reopen cancelled sale as $600 million with borrowing costs raised by 25 basis points; Moody’s cut Bahrain from Ba1 to Ba2 in May; During the same month, Bahrain issued a $435 million Sukuk, a privately placed Islamic offering with regional banks in May.No change (under threat)