Saudi Arabia, Kuwait and Bahrain are running relatively high fiscal deficits despite the high oil prices and these countries require still higher oil prices to mend the situation.
According to a Standard & Poor’s report, these countries require either higher oil prices or export volumes, expansion of other nonoil revenues sources, or sharper cuts in expenditure to achieve fiscal balance.
Given its Brent oil price assumptions, S&P says only Bahrain should post a fiscal deficit throughout the forecast to 2026, but it expects Saudi Arabia and Kuwait to post deficits over this period.
Saudi Arabia’s 2024 prebudget statement indicates fiscal deficits through 2025 as it increases medium-term expenditure to support development projects under the Vision 2030 program. In line with the government’s revised spending plans, we expect fiscal deficits of about 3% of GDP in 2023 followed by an average 1% deficit during 2024-2026.
Similarly, S&P expects Kuwait to report fiscal deficits averaging 14% of GDP in 2023-2026 on account of high expenditure, notwithstanding relatively high oil prices. The reason for the deficits is that our forecasts do not include our estimates of Kuwait Investment Authority (KIA) investment income and include the government’s discretionary 10% revenue transfer to the Future Generations Fund.
In addition, Kuwait’s 2023-2024 budget plans a sizable increase in expenditure, including a policy to create new public sector jobs, permit government employees to convert vacation day balances into cash payments, and paying arrears to the Ministry of Oil and Ministry of Electricity. That said, Kuwait’s general government fiscal position remains very strong on account of KIA assets, and the government’s low debt burden of about 5% of GDP in 2022.
The Bahraini government is targeting close to fiscal balance by 2024. We do not currently expect the target to be met on account of lower-than-projected non-oil receipts and higher overall expenditure, the latter partially owing to delays in the rationalization of social subsidies. However, deficits could be lower than under our base case should the government fully commit to consolidation measures. We also note that Bahrain’s fiscal breakeven oil price remains high but has fallen compared to 2020 due to the post-pandemic increase in revenue aided by the government’s non-oil revenue diversification efforts.
Also published on Medium.
