GCC governments expected to boost spending in 2001
The year 2000 represented a paradox for the GCC states. While the region experienced massive growth, as a result of buoyant crude oil prices, the non-oil sectors languished in recession. The region’s governments have therefore found themselves under increasing pressure to raise expenditure in 2001, so as to give their private sector a badly needed boost.
According to Gulf Business, this coincides with the very cautious fiscal policy implemented by GCC governments in 2000. And indeed, despite the rise in the price of oil, they have for the most part resisted the temptation to increase public expenditure. Instead, these governments used their windfall surpluses to repay budget deficits and debts, as well as for consolidating reserves.
But members of the non-oil sector—and this includes much of the private sector and the economically indispensable middle class—face a severe economic slowdown. There are increasing signs of liquidity shortages and banks are become veritably stingy in their loan policy. Bankers have pointed out that a significant percentage of the private-sector borrowers are facing difficulties, often demanding a restructuring of debt and in most cases extending repayment periods.
With regional stock markets practically dormant and local investors inclined to set their sights elsewhere, the GCC governments may have little choice but to intervene to pump more money into the local economies. In fact, according to Gulf Business, GCC officials already are implying that the various 2001 budgets will show substantial increases in public funding. But in and of itself, an increase in public expenditure is unlikely to win back the confidence of investors. That will require other government measures, such as privatization of state assets and opening up the local markets.
Gulf Business concludes that prospects seem better for 2001. Increases in public expenditure are likely to have a positive psychological effect and there are also signs that profit margins in many sectors are widening, as local demand is on the rise. — (Albawaba-MEBG)