Fiscal Sustainability and Hydrocarbon Endowment Per Capita in … · 2020. 9. 30. · e-mail: [email protected]; [email protected]. 216 In this chapter, we focus

215© The Author(s) 2021G. Luciani, T. Moerenhout (eds.), When Can Oil Economies Be Deemed Sustainable?, The Political Economy of the Middle East, https://doi.org/10.1007/978-981-15-5728-6_9

CHAPTER 9

Fiscal Sustainability and Hydrocarbon Endowment Per Capita in the GCC

Monica Malik and Thirumalai Nagesh

1 IntroductIon

GCC economies remain highly dependent on the hydrocarbon sector in terms of the composition of GDP and as a source of government revenue and export base. However, variations persist across the region, with the economies of Bahrain and Dubai the most diversified and Kuwait the least. The key non-oil sectors across the GCC tend to be in the following areas—construction, real estate, tourism, retail, hospitality, aviation and petro-chemical and energy-intensive industries (such as aluminium). The policy focus again intensified towards economic diversification from end-2014 with the sharp fall in the oil price. New development plans have been announced to reach this objective, most notably in Saudi Arabia, with the National Transformation Plan and Vision 2030, both announced in 2016. These plans are a blueprint to diversify the Saudi economy (fiscally and in terms of composition of GDP) and highlight the government’s commit-ment to transform the economy away from oil.

M. Malik (*) • T. Nagesh The Hills Compound, Abu Dhabi, United Arab Emiratese-mail: [email protected]; [email protected]

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In this chapter, we focus on fiscal sustainability, given the importance of fiscal policy in the GCC. Most of the hydrocarbon earnings (via national-ized companies) accrue to the regional governments who then are the main conduit for this revenue to enter the domestic economy and the central factor dominating economic activity and domestic demand. As such, governments in the GCC play a much larger role in the economy than is generally the case for other emerging market countries and are often the key employers, especially for the national population. The role of government spending is especially vital for the macro-management of the GCC economies, given their limited control of monetary policy with their currencies being pegged to the USD. We highlight that the fiscal side is just one aspect of overall economic sustainability, albeit linked to other areas. Indeed, the diversification in the economic base will support the deepening non-oil revenue. However, fiscal reforms and consolidation at times of lower oil price cycles result in weaker domestic activity, including investment (public and indirectly private) and impeding diversification plans. In this chapter, we focus on fiscal reforms between 2014 and 2018, particularly on the UAE and Saudi Arabia as they have seen the greatest fiscal reforms during this period, though it also highlights fiscal strength and developments in other GCC countries.

Despite the renewed emphasis on shifting away from the hydrocarbon sector, the GCC countries that are currently the most resilient and best able to cope with the low oil price environment are those with large hydro-carbon reserves relative to their populations (hydrocarbon rich per capita). These countries tend to use less of their resources supporting the popula-tion, resulting in stronger fiscal fundamentals that bolster their economic sustainability despite high exposure to the hydrocarbon sector. We high-light in the chapter that the economic strength of these countries are reflected in a number of economic indicators, including low debt and high foreign currency reserves, which in turn feed into their stronger sovereign rating. This reflects their stronger saving rates when oil prices are higher, alongside lower budget breakeven oil prices. This does not mean that these economies should not look to diversify. Rather, it highlights that their fiscal strength results in less pressure on the economy during times of low prices and reform. Thus, fiscal sustainability at this stage is mostly unrelated to the degree of economic diversification. Fiscal diversification has largely been weak across the region, with hydrocarbon revenue remain-ing the main source of government income. That some countries have a relatively higher share of non-oil revenue in total revenue, in many cases,

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reflect weaker hydrocarbon endowment rather than a diversified revenue base (especially tax) or lower subsidy levels.

The underlying fiscal strength and sustainability of GCC economies is especially important at a time when the region has seen relatively limited success in widening the economic base (composition of GDP) much beyond pre-2014 levels. There have been some signs of greater fiscal reforms, especially in the UAE and Saudi Arabia. However, this has placed downward pressure on their economies, including the private sector—who are often proposed key drivers of economic diversification and raising employment opportunities for nationals. Thus, government-led initiatives will be central to boosting and deepening economic activity, alongside developing a framework to access private capital and expertise—local or international. Notably, a number of GCC countries are promoting labor nationalization programs, in varying degrees, to help create job opportu-nities for nationals, especially the youth. Reducing the share of govern-ment spending on wages will also be critical to boosting fiscal sustainability across the GCC, especially for the hydrocarbon poorer per capita coun-tries, alongside reforms to increase non-oil revenue.

The other area of policy adjustment and economic support has been on the oil front since 2017—the pullback in OPEC+ oil production has helped to reduce global inventories and has provided fundamental support to the oil price. The rise in global oil prices since mid-2017 reduces some of the fiscal (and external) pressure seen from end-2014, particularly in 1H2016. In turn, this has allowed an increase in government spending for 2018. GCC fiscal positions improved in 2018 despite the increase in gov-ernment spending, thanks to the higher oil revenue. However, the fall in oil price at the end of 2018 and the ongoing development in hydrocarbon technology that are likely to impact future supply and demand (including shale oil, renewable energy and electric vehicles) highlight the need for further reforms to strengthen and deepen fiscal sustainability in the GCC.

2 VarIatIons In Gcc Hydrocarbon EndowmEnts and EconomIc sustaInabIlIty

The size of hydrocarbon reserves per capita is a key factor for fiscal sustain-ability currently rather than just the size of the hydrocarbon reserves themselves or hydrocarbon revenue as a percentage of total government

9 FISCAL SUSTAINABILITY AND HYDROCARBON ENDOWMENT PER CAPITA…

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revenue. Based on per-capita hydrocarbon endowments, the GCC coun-tries can be broadly divided into two categories (Figs. 9.1 and 9.2):

• Hydrocarbon richer per capita: These countries have higher hydro-carbon reserves (and production) relative to their populations. They include Kuwait, Qatar and the UAE (Abu Dhabi led).

• Hydrocarbon poorer per capita: These countries have relatively smaller hydrocarbon reserves (and production) relative to their pop-ulations. They include Bahrain, Oman and Saudi Arabia. Within this group, Oman and Bahrain are in relatively weaker positions versus Saudi.

The per-capita hydrocarbon ratio is particularly important in the GCC, given the relationship between the state and citizens—that is, the social contract. In simple terms, in GCC economic frameworks, hydrocarbon revenue falls to the government (via the national oil and gas companies) and is then distributed and mobilized for the well-being of the population and country. This has also meant that there is a framework to support the citizens from cradle to grave in various ways, including covering education and healthcare, highly subsidized utility prices, land and cheap financing

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Fig. 9.1 GCC: Hydrocarbon endowment per capita (reserves) based on national population. (Source: BP [hydrocarbon reserves data], regional statistical agencies [population data 2016–18], authors’ calculations and methodology)


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to build housing. There are, however, variations across the region on the level of support provided by the government to nationals, including with the differences in the pace of reforms seen since 2015 also contributing to this. Moreover, the public sector has been a key employer of nationals and there has been a limited tax base. This social contract is seeing signs of change, especially with the fall in the oil price and the rise in the domestic population. Indeed, the region has seen a pullback in subsidies and the introduction of fees and some taxes since 2015. At the same time, strong population growth means that the younger generation of GCC nationals may not fully be able to rely on the state to provide them with jobs. Nevertheless, the social contract remains largely in place despite these adjustments.

The nature of the economies and impact of the social contract has resulted in hydrocarbon richer countries generally having to spend less of their hydrocarbon income to support their populations. This has also meant that these countries have seen larger fiscal surpluses and foreign currency reserve build-ups during periods of higher oil prices. Moreover, after the collapse of the oil price at end-2014, they have largely seen smaller deficits and thus, have required lesser fiscal adjustment to balance their budgets (Fig. 9.3).

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Fig. 9.2 GCC: Hydrocarbon endowment per capita (production) based on national population. (Source: BP [hydrocarbon output data], regional statistical agencies [population data 2016–18], authors’ calculations and methodology)


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3 Hydrocarbon EndowmEnt sEEn In VarIous FIscal and EconomIc IndIcators

The hydrocarbon endowment of the GCC countries is reflected in a num-ber of fiscal and economic indicators, including:

• Budget breakeven (BBE) oil price: This is the required oil price for a fiscal budget to be balanced. GCC budget breakeven oil prices have largely fallen since the peak in 2014 until 2017 as GCC governments reduced spending and introduced fiscal reforms. The hydrocarbon richer per capita countries have lower BBE oil prices, alongside lower external breakeven oil price (the oil price needed for the current account to be balanced). This lower BBE oil price again reflects that less of the hydrocarbon resources are spent on the national popula-tion and more of the income from resources are saved. After the 2014 shock, the UAE and Kuwait remain the most comfortable fis-cally and have seen an improvement in their budgetary performance with the rise in the oil price from the oil price trough; whereas Bahrain, Oman and Saudi Arabia lagged behind. It is feasible that the BBE price will again rise in the future if international oil prices

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Fig. 9.3 GCC: Hydrocarbon endowment per capita reflected in current account and fiscal balances. (Source: Regional statistical agencies, ADCB estimates [2019, 25])


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recover or stabilize, and governments look to support growth and sentiment (Table 9.1).

• Debt to GDP: The hydrocarbon poorer per capita countries gener-ally have higher government debt levels relative to GDP. The GCC countries largely entered this oil price crisis with low government debt levels (with the exception of Bahrain), as they used the strong oil prices from prior years to reduce their debt levels. Again in the case of the UAE the low overall debt position relative to GDP stems from Abu Dhabi, with Dubai seeing higher levels. However, the larger fiscal deficits in Bahrain, Oman and Saudi Arabia from 2015 with the correction in the oil price have resulted in greater funding requirements and a faster acceleration of government debt. This rise in the debt stock is resulting in more government spending being allocated to interest payments and debt servicing. For most GCC countries except Bahrain, interest payments still account for a small share of overall spending (Figs. 9.5 and 9.6).

• Foreign currency reserve position: The hydrocarbon richer per capita countries have been able to build up significant foreign cur-rency reserves, reflecting their larger fiscal surpluses during times of higher oil prices. Moreover, there has been less pressure to draw down these reserves to cover fiscal deficits. Income from these reserves, often invested by their sovereign wealth funds (SWF), pro-vides an additional source of income (investment) to the govern-ment and in a way is a form of revenue diversification. Saudi Arabia was looking to sell 5% of Aramco,1 in part to increase overseas invest-ment and thereby boost and diversify government income. The

1 Aramco listed its shares domestically on the Tadawul exchange on 11 December 2019, raising USD25.6 billion from a 1.5% stake sale. Subsequently, it also exercised its “greenshoe option” to sell an additional 450 million shares, taking the total stake sale to 1.725%.

Table 9.1 GCC: Fiscal budget breakeven oil price (USD per barrel)

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Bahrain 76 81 99 112 116 119 116 118 107 103Oman 65 66 71 81 83 96 103 96 89 84Saudi 57 65 67 78 79 92 106 95 96 78UAE 44 66 70 74 77 76 83 65 60 65Qatar 29 27 33 38 43 50 54 50 53 57Kuwait 34 29 45 43 49 52 56 49 47 51

Source: IIF (2018, 3)


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FX reserves, % of 2018 GDP

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Fig. 9.4 GCC: Hydrocarbon endowment also reflected in regional FX reserve* positions. (*Includes reserves with SWFs and held at central banks. Source: Sovereign Wealth Fund Institute, Regional Central Banks, ADCB estimates [GDP])

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Fig. 9.5 GCC: Hydrocarbon poorer per capita countries have largely seen a faster rise in government debt. (Source: IMF, ADCB estimates)


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reduction of foreign currency reserves since 2015 is however most clearly visible in the Saudi Arabia Monetary Authority’s net foreign asset (NFA) position, which highlights the drawdown in reserves to help fund the fiscal deficit. For other GCC countries, a significant part of their foreign currency reserves are held by SWFs and thus there is limited visibility (Fig. 9.4).

• Sovereign ratings: foreign currency reserve positions and govern-ment debt levels are also reflected in the sovereign ratings of GCC countries. The hydrocarbon richer per capita countries have substan-tially higher sovereign ratings, underpinned by large foreign cur-rency reserves and low debt levels. Notably, despite the sharp correction in the oil price, Abu Dhabi and Kuwait have not seen any ratings downgrades by the three main ratings agencies since 2014. Moreover, their ratings remain among the strongest globally. On the other hand, Bahrain, Oman and Saudi Arabia have seen multiple downgrades over this same period. The ratings are reflected in the cost of borrowing and the risk premium, with hydrocarbon poorer per capita countries more susceptible to changes in global sentiment

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and dependent on capital inflows (to cover fiscal and current account shortfalls and to support investment and diversification programs) (Table 9.2).

• GDP per capita and unemployment: Reflecting the fact that fewer resources in relative terms have to be used to support their populations, the hydrocarbon richer per capita countries also tend to have higher GDP per capita and spending power. Moreover, unemployment levels for nationals tend to be lower, though regional data on this front is limited. The hydrocarbon richer countries also tend to have a larger share of expatriates in their populations, given their relatively smaller national populations relative to economy size and the ability of the public sector to employ nationals.

Table 9.2 GCC: Sovereign rating changes by the main rating agencies since 2015–2018

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Bahrain BBB BB- 4 notches down

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Oman -NA- BB+ 2 notches downa

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Source: Bloomberga2 notches down from 3 Jan 2017bRatings started from 3 June 2015


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There are, naturally, variations within the GCC based on government policy and effectiveness. During times of high oil prices, Kuwait saw sub-stantially larger fiscal surpluses as a percentage of GDP (2005–2008), as the government made limited progress in its investment plans, partly due to the difficult relationship between the cabinet and the National Assembly. Meanwhile, in the case of Qatar, government debt was higher at end-1990, reaching 74.4% of GDP in 1999, given borrowing to develop the gas industry. However, the rise in gas income resulted in a sharp reduction in government debt to 8.9% of GDP in 2007, and FX reserves rose. As noted earlier, GCC countries used strong oil revenues in 2002–2014 to reduce debt levels, though aggregate government debt have risen from 2014 to well above the 2002 peak in absolute terms, largely driven by the hydro-carbon per capita poorer countries. Notable, Saudi Arabia started issuing external debt from end-2016, earlier all of the government debt was SAR denominated.

4 FIscal rEForm momEntum

The period between 2003 and 2014 generally saw strongly expansionary government spending from the GCC countries. This pickup in govern-ment was supported by the strengthening in the oil price from around 2002, though the pace of spending increase also varied between the GCC countries. For example, Saudi Arabia initially took a more cautious approach, whilst focusing on reducing government debt levels. Notably, this debt repayment also supported liquidity in the banking sector (with all government debts being domestic at this point, including those held by banks and pension organizations), indirectly providing a boost to eco-nomic activity. Much of the initial increases in spending during this period was led by UAE (Dubai) and Qatar (including the development of the gas sector) and partly debt led, though with the broader pace rising across the GCC from around 2003.

The increase in government spending until 2011 was both on the cur-rent and the capital fronts, though overall the capital expenditure had limited impact in broadening the economic base. In many cases, a signifi-cant part of the investment was to upgrade infrastructure, compensating for weak periods of investment in the 1980s and 1990s with low and vola-tile oil prices, and for the rise in population. However, we also note that, in many cases, higher investment spending was implemented by govern-ment related entities (GREs), and thus not reflected in the governments’


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budgets. From 2012, there was a shift across the GCC toward current expenditure, likely impacted by the MENA Arab Spring developments. The overall rise in government spending was reflected in the rise in the BBE oil price of the GCC countries from 2004 to a peak in 2014, and supported by the overall rise in the oil price (ex-2009). GCC countries largely saw fiscal surpluses over this period (ex-2009), with the exception of Bahrain, which saw a sustained deficit since 2009. However, with the sharp correction in the oil price from end-2014, the focus of fiscal policy shifted towards retrenchment and reform (Figs. 9.7 and 9.8).

Since end-2014, the pace of fiscal reform in the GCC has gathered momentum. This is especially important, given (1) the large youth popu-lation and national population growth rates and (2) medium- to long- term structural challenges to the oil price, including from new technology (shale, renewable energy sources). GCC economies will have to create jobs to cater for the entry of nationals into the work force (please see our labor market and reform chapter), with educational reforms also vital for supporting the needs of the private sector and economic development. Without this job creation, greater pressure will fall on the governments to support the national populations, through jobs creation or by a support framework.

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Fig. 9.7 GCC: Government spending growth was strong between 2003 and 2014. (Source: Reuters (oil price), spending growth calculated from regional sta-tistical agencies and IMF GDP data)


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The fiscal reforms have been much wider than seen in previous oil price downturns, indicating that areas that were previously seen as sensitive are open to change and reform. For example, subsidies have been reduced, which was not the case in the 1980s and 1990s, when the main fiscal adjustment was through the retrenchment of spending. A significant development for the GCC was the introduction of VAT in Saudi Arabia and the UAE on 1 January 2018 and in Bahrain in January 2019. This was a vital initial step in developing tax revenue in the region, which has a weak tax base.

5 PHasEs In Gcc FIscal rEForm

The pace and focus of fiscal consolidation across the GCC has varied over the past few years. For the main fiscal reform measures introduced, please see Appendix A.

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5.1 Phase 1: Expenditure Cutbacks and Subsidy Reforms in 2015 and 2016

The initial response by governments was to substantially cut back govern-ment expenditure, especially on the capital front. It is generally harder to retrench current expenditure in the GCC, given the dominance of public sector wages. Weighted GCC government expenditure fell by c.11.4% in 2015 and by a further 11.1% in 2016. In 2015, Kuwait, Saudi Arabia and the UAE saw a double-digit contraction in government spending. Between 2014 and 2018, Qatar and Kuwait saw a significant pullback in govern-ment spending. The UAE drop was the least among the hydrocarbon richer per capita countries, as Dubai adopted an expansionary fiscal posi-tion, whereas Abu Dhabi actually was particularly proactive in cutting gov-ernment spending. The hydrocarbon richer per capita countries are generally in a stronger position to reduce government spending as a lower amount of total expenditure goes on public sector wages, reflecting the difficulties in cutting this key component of current expenditure. Nevertheless, Saudi Arabia and Oman also saw a significant retrenchment in total expenditure during this period, with only Bahrain seeing limited pullback in expenditure during this period (Figs. 9.9 and 9.10).

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Fig. 9.9 GCC: Government sharply pulled back spending in 2015 and 2016 in response to the lower oil price. (Source: Calculated from regional statistical agen-cies and IMF data)


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Alongside a direct pullback in government spending, GCC govern-ments also adopted wider measures to strengthen their fiscal positions. First, a number of countries have also focused on streamlining govern-ment related entities (GRE), so as to reduce costs and potentially increase returns for the government. This has included job cuts alongside mergers amongst entities in similar economic areas. The objective is to boost effi-ciencies and extract cost synergies. This trend was most visible in Abu Dhabi, where mergers were seen in a number of areas including amongst banks and companies in the hydrocarbon sector. In Abu Dhabi, there have also been signs that GREs have had to become more reliant on raising their own funding or unlocking value of their assets to meet spending and development plans, thereby reducing the support required from the cen-tral government. A later example of this is the part privatization of ADNOC distribution in December 2017. In Qatar, the rationalization included reducing the GRE workforce, with Qatargas and RasGas also merging. The new entity, called Qatargas, started operations on 1 January 2018. There were wider adjustments, with a number of the major GCC corporates having some form or degree of government ownership, includ-ing national oil companies, national utilities companies, telecoms opera-tors, chemicals or real estate firms.

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Second, there were also increases in a number of government fees and the introduction of new ones. Importantly, progress was made on subsidy reforms—which is vital to improving fiscal sustainability, especially as the marginal ability to reduce spending moderate after the first few years. Subsidy reforms have mostly centered on rising fuel and utility prices, with the UAE kicking off the process in 2015 after some earlier price adjust-ments in the UAE and Qatar. Notably, these reforms have impacted nationals as well as expatriates, alongside corporates. UAE and Saudi Arabia have made some significant reductions in their subsidy framework, whilst Kuwait has seen limited reforms with ongoing opposition from the National Assembly. See Moerenhout in this volume for a detailed over-view of energy subsidy reforms.

Third, there were moderate labor sector reforms. In a significant move, Saudi Arabia moved to reduce public sector wages and benefits in October 2016. This was notable, as reducing public sector wages had been/is seen as socially sensitive, especially, given the greater proportion of nationals working in the public sector versus the private. However, these were fairly short-lived.

5.2 Phase 2: Reduction in Pace of Reform in 2017; Stabilization in Spending

The pace of fiscal reform moderated markedly in 2017, which partly high-lights reform fatigue and the difficulty of sustaining a multi-year reform program, in our view (Fig. 9.11). The weakening in economic momentum as a result of fiscal adjustments limited the ability of the economy to absorb new measures. This is particularly magnified in the GCC by the dominant role of the government in driving economic activity. Notably, a critical fac-tor supporting the more gradual pace of fiscal adjustment in 2017 was a rise in the oil price, especially in 2H2017. Central to this was the change in OPEC’s oil policy from one of increasing oil production to increase market share (2015 and 2016) to one of cutting output to help reduce the global oversupply and push up the price. The non-OPEC countries involved in this deal included Oman and Bahrain, alongside large global producers, such as Russia. Compliance was strong in 2017, in a large part due to greater-than-required production cuts from Saudi Arabia.

Most of the narrowing in GCC deficits in 2017 was largely due to higher oil revenue, albeit overall spending was also restrained and the pace of fiscal reform slowed. Weighted GCC fiscal spending was virtually flat in


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2017, rising by a modest 0.9%. This spending growth calculation is based on delayed payments from previous years made by Saudi Arabia govern-ment contractors in end-2016 (around SAR80 billion) being included in the 2016 fiscal accounts, alongside for “surplus projects” (SAR25 billion) (Kingdom of Saudi Arabia 2016a, 14).

There were some limited new fiscal reforms, including the introduction of an excise tax on harmful goods (cigarettes, sugary and energy drinks) in Saudi Arabia (June) UAE (October) and Bahrain (December). Kuwait and Oman also reduced water and electricity subsidies in 2017, aimed at certain sectors (Appendix A). Saudi Arabia did not progress with further subsidy reforms that were planned for the year under its Fiscal Balance Program 2020 (Kingdom of Saudi Arabia 2016b, 38). These included linking electricity 100% to reference prices and raising gasoline and diesel prices. Both were initially planned for mid-2017. Overall, there were lim-ited major fiscal reforms in 2017.

There were however also some reversals of earlier reforms. In Saudi Arabia, public sector wages and benefits introduced in October 2016 were reversed (April 2017). A decree reinstated all allowances, financial benefits and bonuses to public employees and military staff. Moreover, a two- month salary bonus for forces fighting on the frontline in Yemen was announced. Moreover, in December 2017, the government pushed out its balanced budget target to 2023 from the 2020 date initially set in the Fiscal Balance Program 2020 (Kingdom of Saudi Arabia 2017, 5). This

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Phase1 -2015-2016- Deep cutbacks in government spending, particualrly capital- Subsidy refroms -fuel and utility prices raisedImpact -Marked softening in domestic demand

Oil policy focusing on maintianing market shareOil policy focusing on market rebalancing -namely reducing global inventories to support the oil price, but suppling market at times of stress

Phase 3 –2018-2019- Variation in deepening non-oil revenue -VAT (UAE, Saudi and Bahrain), excise tax- Some limited further subsidy reforms- Increase in govt. expenditureImpact -Further moderate pick-up in domestic demand, though still weak

Brent crude, USD p/bPhase 2 -2017 - Stabilisation in government expenditure- Tentative increase in government revenues (excise tax)Impact -Some breathing space to absorb earlier fiscal consolidation and relief pickup in non-oil activity; Limited growth support

Fig. 9.11 GCC: Phases of fiscal reforms relative to oil price developments and policy. (Source: Reuters (oil price), authors’ assumptions)


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allows more time to introduce reforms as well as to generate greater gov-ernment expenditure. Subsidy price reforms (including fuel, gas for indus-try and utility prices) will be stretched over a longer period, with adjustments occurring until 2025 to reach international levels.

5.3 Phase 3: Shift to Expansionary Fiscal Stance from 2018; Introduction of VAT

After years of fiscal reforms that have placed downward pressure on eco-nomic activity, GCC governments’ priorities started showing some signs of shifting to supporting growth from 2018 on. The fiscal budgets for 2018 indicated a clear shift towards expansionary spending stances to sup-port economic activity. The stronger oil price outlook for 2018 supported the higher government spending, requiring a weaker magnitude of overall fiscal adjustment (expenditure and reforms combined). We estimate that aggregate government spending rose to 7.2% in 2018, though again there were variations is the rise in expenditure across the region. Saudi Arabia particularly saw a significant increase, with total spending rising by 10.8% in 2018. Most of the marked fiscal improvement in 2018 in the GCC fiscal positions was largely due to higher hydrocarbon revenues and GCC fiscal positions strengthened despite the pickup in government spending.

Most of the fiscal reforms across the GCC focus on deepening non-oil revenue (Figs. 9.12 and 9.13), while raising government expenditure to support economic activity and meet wider medium-term economic goals, including diversification. Nevertheless, the reform measures were more generally periodic with differences between countries. The most signifi-cant and coordinated policy was between Saudi Arabia and the UAE with the introduction of VAT. Moreover, Saudi Arabia and Bahrain also imple-mented another round of energy subsidy reforms. There have been some relatively small moves to boost non-oil revenue, including raising the cost of government fees and introducing new ones. As noted earlier, some GCC countries (Bahrain, Saudi Arabia and UAE) have introduced an excise tax on harmful goods, such as tobacco and sugary drinks. There have only been limited attempts at tax reform across the region, with only Oman making some progress. Oman raised the corporate tax rate from 12% to 15% for all companies in February 2017, eliminating the exemp-tion on the first OMR 30,000 of taxable profits that was previously in place. Oman also sold 10% stake on the Khazzan gas field at the end of 2018 to Malaysia’s Petronas, as a way to raise revenue.


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%, of non-oil GDP (2015)

0

10

20

30

40

50

60

GC

C

Alg

eria

Ang

ola

Mex

ico

Kaz

akhs

tan

Nig

eria

Oil Revenue Non-oil Tax Revenue Non-oil Non-tax Revenue

Fig. 9.12 Global: GCC countries more reliant on hydrocarbon revenues than other commodity producers. (Source: IMF [2016, 9])

%, hydrocarbons as a % of total government revenue

0

20

40

60

80

100

Kuw

ait

Oman

Saudi

Bahrain

Qatar

UAE

2012-14 2015-17

Fig. 9.13 GCC: Hydrocarbon earnings still dominate revenues; Kuwait and Bahrain see smallest reduction. (Source: Calculated from regional statistical agen-cies and IMF data)


234

5.4 VAT Introduction, the Main Reform in Phase 3

The introduction of VAT is a highly positive development toward deepen-ing and diversifying government revenues and deepening taxable income. The weak tax across the GCC has been a central factor for hydrocarbon revenue’s dominance of total revenue despite the recent moves to reduce subsidies and broaden and increase government fees. The GCC states depend on hydrocarbon revenues more than other high commodity- exporting economies, with hydrocarbon revenues still accounting for between 50–85% of total revenues despite the fall in the oil price. We believe that the 5% standard VAT rate has been set to balance raising gov-ernment revenue with limiting downside pressure on economic activity (by dampening domestic demand). The 5% rate is low on a global basis. The average VAT rate globally is c.15%, with most countries having seen a rise in their VAT rates over time.

The UAE raised AED27 billion in revenue from VAT in 2018—equiva-lent to around 1.8% of GDP. ADCB estimated that Saudi Arabia should have raised c.1.5–1.6% of GDP in the first year of its VAT introduction (ADCB 2017, 1). ADCB noted that the UAE and Saudi Arabia will likely see the greatest proportional revenue generation in the GCC. In the case of the UAE, this reflects the larger share of private consumption in the economy. Meanwhile, Saudi Arabia has implemented a broad VAT base aimed at maximizing revenue from the new tax, including in areas such as private education and healthcare. Revenue raised by VAT is expected to increase from the second year as private consumption normalizes.

Whilst the introduction of VAT in the GCC was meant to be coordi-nated to avoid competitive distortions across the region, there are indica-tions that other GCC countries could see delays. Under the Unified VAT Agreement, which outlines a common framework, other GCC countries have 12 months to introduce the tax once the first two have done so. Indeed, by the time of publishing, only Bahrain had introduced VAT in January 2019 linked to its Fiscal Balance Program, which was announced in October 2018 and aims to balance the fiscal budget by 2022. The fiscal program is vital for the GCC five-year support package for Bahrain. However, indications suggest the VAT base is likely to have been narrower than those in UAE and Saudi Arabia, with more areas being zero-rated. For example, oil products would be exempt from VAT in Bahrain.

In Kuwait, the National Assembly’s budget committee announced in May 2018 that the government will postpone the implementation of VAT until 2021. Finance minister Nayef al-Hajraf noted in an interview that


235

the government is facing opposition from parliament to VAT (Bloomberg 2018). Qatar has as yet given no indication as to when it plans to imple-ment the indirect tax despite having made solid progress with the frame-work in 2017. Meanwhile, Oman has announced that it will postpone introduction until 2021, as outlined in the July 2019 Government of Oman bond prospectus (Reuters 2019). Earlier indications suggested that Oman will likely introduce a narrow VAT base that will exclude areas such as food, included in Saudi Arabia and the UAE (ADCB 2018, 9).

5.5 Measures to Support Growth

However, Saudi Arabia and UAE both introduced measures in 2018 to bolster economic activity, which had been impacted by the fiscal policy. In the UAE, a number of wider factors were also acting as headwinds to the non-oil sectors, including the indirect impact of fiscal reforms in other countries contributing to weak external demand. We believe that the direct support in Saudi Arabia was much greater in 2019, with the mea-sures introduced largely cancelling the fiscal reforms (VAT, subsidy reduc-tions, rise in expatriate fees, etc.). On an individual household basis, we believe that some will not be fully insulated from the impact of fiscal reforms, particularly those working in the private sector and expatriates. In the case of the UAE, the support measures were wider based (i.e. rather than fiscal based), including changes to investment regulation. Thus, we believe that the UAE likely saw fiscal consolidation in 2018 with the intro-duction of VAT, while in the case of Saudi Arabia it was largely offset by the higher government spending.

In the case of Saudi Arabia, a public sector support package was announced in early January, just days after the introduction of VAT and the reduction in electricity and fuel tariffs. The one-year package was aimed at reducing the burden of the fiscal reforms implemented, with a number of corporates following the government by temporarily boosting wages for some nationals including Aramco and SABIC. The support package included a cost of living allowance and bonus for civil servants and military personnel (see later for more details). Thus the overall effect of the government’s fiscal reforms measures in 2018 was muted by the measures that it introduced to shield the national population from the introduction of VAT and lower subsidies. Alongside the handout package, Saudi Arabia also introduced a Citizens Account Program—transfers to support low- and middle-income families—introduced in end December


236

2017. The program eventually developed into a comprehensive social security platform. Notably, the public sector handout package was extended for a further year and will also be paid in 2019. The preliminary data for 2018 indicated that the government’s current expenditure (which includes wages) rose by a significant 14.3% in 2018, up SAR103.2 billion. Investment spending contracted by SAR2.6 billion in 2018, down −1.2% (Fig. 9.14).

In the case of the UAE, a number of economic support packages were announced in mid-2018—on both a country-wide and emirate levels—with additional details being announced subsequently. The support pack-ages look to (1) reduce short-term pressure on corporates; (2) boost the competitiveness of the economy; (3) structurally strengthen the business environment and raise investment levels (domestic and international); and (5) support human capital development and accumulation, amongst oth-ers. On a country-wide basis, there have been announcements related to changes to residency and investment laws, including lengthening resi-dency visas for up to 10 years for professionals in key sectors and for for-eign investors establishing businesses in the country. Moreover, companies will be allowed to own 100% of their business outside free trade zones (the current limit is 49%) in certain sectors. The various packages also had a number of measures on the fiscal side, inclusive of reductions in fees for government services (Abu Dhabi and Dubai), alongside the outlook for higher spending in areas, such as housing, roads, infrastructure and

PP contribution to GCC real non-oil GDP growth

012345678

2012

2013

2014

2015

2016

2017

2018

e

2019

f

Bahrain Oman KuwaitQatar UAE SaudiGCC weighted growth

Fig. 9.14 GCC: Gradual recovery in real non-oil GDP growth from 2017 with modest pickup in government spending and more limited fiscal reforms. (Source: Calculated from regional central banks, statistical agencies and IMF data, ADCB estimates (2019, 4))


237

healthcare. For more details of the measures introduced to support eco-nomic activity, please see Appendix B. There have been more announce-ments related to these measures in 2019, either providing more details or broadening the measures.

Fiscal developments in 2019 so far indicate an overall continuation in the 2018 fiscal stance, that is, one of expansionary spending stance, mea-sures to support growth, with limited fiscal reforms in 2019, as govern-ments continue to look to support their respective countries’ growth outlook over further fiscal consolidation. A number of countries announced expansionary budget, with the UAE and Saudi budgets pointing to the greatest planned increase in spending. Data showed that total government spending in Saudi expanded by 8.5% in 1Q2019. Fiscal reforms in 2019 have remained patchy and relatively limited—such as the introduction of an excise tax in Qatar and Oman, rise in water prices in Oman and higher expat levies (individuals and corporates) in Saudi Arabia. However, the Saudi government announced a relief scheme for some companies to ease the impact of rising labor costs in February 2019. Saudi Arabia also announced new retail fuel prices for 2Q2019 (effective 14 April), with Aramco announcing that retail fuel prices will be set on a quarterly basis, subject to crude oil export prices. The only key exception where we expect to see rising fiscal consolidation and reforms is Bahrain, linked to its medium-term fiscal adjustment program. Meanwhile, OPEC+ countries again decided to cut output from January 2019 to support the oil price, with the production targets extended from July 2019. Nevertheless, the ability to loosen fiscal policy remains limited with the current oil price, though with the variations linked to the hydrocarbon endowment and the BBE oil price.

6 GrEatEst adjustmEnt by country

Alongside the variations in the timeline of reforms, there has been varying progress in the pace of reform across the GCC as well. The UAE and to a lesser degree Saudi Arabia have been the most proactive in introducing fiscal reforms. This reflects that other economic, social and political factors are important for the ability of regional governments to progress with fis-cal reforms. However, we believe that hydrocarbon endowment will likely play a strong role, especially in terms of implementing a multi-year reform program. Factors likely contributing include the variations in GDP per


238

capita amongst the national population across the region and their ability to absorb fiscal adjustments, especially on a cumulative basis.

The UAE has frontloaded much of the fiscal adjustment and cutback in spending. The pace of subsidy reform in Abu Dhabi and the broadening and raising of government fees have occurred at a steady and staggered pace since early 2015 and early 2018 (with the introduction of VAT). The UAE, with its high hydrocarbon endowment per capita and greater pace of fiscal reform, has one of the strongest fiscal positions among GCC countries, in our view. Moreover, it benefits from the more diversified nature of Dubai’s economy, which however was not immune to the fall in the oil price, given the softening in regional demand.

In Saudi Arabia, the pace of reform has been patchier despite announc-ing a very ambitious fiscal reform program in 2016 for a balanced budget by 2020, though this target was then extended to 2023. There have been two main phases of subsidy reforms in Saudi Arabia—(1) end-2015 and January 2016 and (2) January 2018. The impact of the second round of subsidy reforms on Saudi citizens and the introduction of VAT was damp-ened shortly after, with the introduction of an allowance package for pub-lic sector employees. Moreover, the reduction in public sector benefits in Saudi Arabia was short-lived and was reversed. Overall, this still reflects the sensitivity and cautiousness in implementing fiscal reforms that touch Saudi households (Table 9.3).

The other four GCC countries have seen a more moderate pace of fiscal reform, in our focus time period. There have been no major reforms in Qatar since 2017—following the regional developments, the govern-ment’s focus is on stabilizing and supporting the economy. In Kuwait, there has been substantial populist opposition to fiscal reform, led by the National Assembly. This is the most independent legislature in the GCC and a central stumbling block for the government to make progress with its fiscal reforms. For Bahrain, wider GCC support was vital for the invest-ment program, given the limited fiscal reforms. However, going forward, the pace of fiscal reforms in Bahrain is expected to strengthen for contin-ued GCC support. GCC countries (Kuwait, Saudi Arabia and UAE) pledged USD10 billion in aid to Bahrain in October 2018, significantly reducing short-term funding pressures. The GCC support package will be spread over five years and will be linked to Bahrain’s Fiscal Balance Program, which was announced straight after the aid package and aims to balance the budget by 2022. As noted earlier, VAT was already introduced


239

in 2019 and the 2019 draft budget sees a 12% drop in government spend-ing in 2019.

The hydrocarbon poorer per capita countries tend to spend more on wages and salaries as a total share of spending, whilst debt servicing costs have also been increasing with rising debt levels. Moreover, with higher GDP per capita in the hydrocarbon richer per capita countries, their popu-lations can more easily absorb fiscal reforms, though it is also of course a function of other factors, including a change in the social contract. The larger expatriate populations relative to domestic populations in the hydrocarbon richer per capita counties also support greater fiscal reforms. On the other hand, the nationals of the relatively hydrocarbon poorer per capita countries are more impacted by the subsidy reforms, resulting in some cases in greater pushback. Moreover, the need for fiscal reform tends to be greater in these countries, though this can be a positive point in ultimately supporting fiscal reforms going forward.

7 conclusIon

GCC fiscal reforms have been much wider than seen in previous oil price downturns, with areas that were previously seen as too sensitive to tackle are open to reform and change. GCC countries have implemented a num-ber of reforms since 2014, alongside a deep pullback in government spending—the main earlier method of adjusting to lower oil price. The reduction in subsidies and the introduction of taxes, including for the

Table 9.3 Components of allowance package, announced on 6 January 2018

Monthly cost of living allowance for one year

• Military and Civil servants SAR1000 • Retirement Pension and Social-benefit Recipients SAR500Social Security Benefit payment SAR500Student allowance 10% increaseVAT covered by government for first home purchase for nationals Up to

SAR850,000VAT covered for private healthcare and education services for nationals

–

Payment to military personnel serving in Southern border SAR5000Annual Bonus for Military and Civil servants who worked in 2017 –

Source: Various media sources, cited in ADCB (2018, 2)


240

national population, has been significant developments in our view. Despite this, oil income continues to be the main revenue source for GCC government and the need for further reforms to deepen tax revenue remains. Thus, while GCC economies continue to be reliant on hydrocar-bon revenue and the social contracts remain, we continue to see hydrocar-bon richer per capita countries as being the most sustainable in fiscal terms and in the strongest position to withstand a low oil price backdrop. These governments can better support their national populations.

However, the reforms program has not been uniform, either on a coun-try basis or in a steady implementation of the adjustment period. On a country basis, the UAE and Saudi Arabia have seen the greatest pace of fiscal reforms out of all the GCC countries since 2015—one hydrocarbon richer per capita and one hydrocarbon poorer per capita. This indicates that other economic, social and political factors are important for the abil-ity of regional governments to progress with fiscal reforms beyond the hydrocarbon endowment per capita of countries. However, we believe that hydrocarbon endowment will likely play a strong role, especially in terms of implementing a multi-year reform program. Factors likely con-tributing include the variations in GDP per capita amongst the national population across the region and their ability to absorb fiscal adjustments, especially on a cumulative basis. Indeed, Saudi Arabia implemented a number of measures to limit the impact of reforms, particularly following the introduction of VAT and subsidy reforms in early 2018. In the case of the UAE, fuel prices have been liberalized and utility prices are likely close to market rates. Most of the UAE’s fiscal reforms have had to be absorbed by the economy, with limited measures to dampen the impact of reforms. However, the UAE has generally had to raise prices by a lower magnitude than Saudi Arabia, as they were not so low in absolute terms to start with.

The GCC developments highlight the difficulties in implementing a multi-year fiscal reform program during times of low oil prices, whilst also looking to widen the economic base. This is especially the case when the government has largely remained the main driver of economic activity and domestic demand, either directly through government spending and pol-icy or via government-related entities. The narrow economic (diversifica-tion) and private sector base highlights the difficulty in implementing a multi-year fiscal adjustment and austerity program. The fiscal consolida-tion had led to a sharp slowdown in economic activity, which in turn limits the ability of the economy to absorb new fiscal reforms. In many other regions and countries, fiscal policy is often counter-cyclical to the wider


241

economy, whilst, in the GCC, the impact of consolidation is magnified by corporate entities are closely linked to governments and their spending plans. Moreover, with the largely ongoing social contract and the difficul-ties in the government to increase employment numbers, labor policies are placing additional pressures on the private sectors at times when they are expected to drive growth and support the diversification of the economy.

It remains vital for GCC countries to continue with their fiscal reform programs, to reduce the reliance on the oil sector. Two factors will be central to boosting fiscal sustainability across the region, in our view: (1) the deepening of the tax base and (2) lowering the wage composition of government spending. Hydrocarbon earnings still dominate government revenue and are the main factors driving the overall fiscal position (magni-tude of surplus or deficit). GCC tax levels remain low (corporate income tax, individual income tax and VAT) on a MENA and global basis. For some countries, further subsidy reforms are also required. A number of factors will be important for developing the tax base, including reducing the role of the public sector, improving the business climate and a frame-work for supporting private sector growth. We focus on the issue of labor in our next chapter.

The need to progress with the fiscal reforms is vital, given the ongoing challenges to the oil sector is expected to face, including from improving technology, which will have supply and demand implications. Having a medium- to longer-term fiscal reform program, which progresses at a steady and gradual pace, could help with the implementation. At the same time, wider economic objectives could also be included to improve the sustainability of a fiscal reform framework and raise the capacity of the economies. Focus should also be on targeted measures, spending and investment to support key sectors for diversification, which will be vital in deepening the economy and absorbing further fiscal reforms. Indeed, the earlier period of high government spending growth from the early-2000s did not result in any meaningful economic diversification of the economy and the rise in government spending from 2008 has tended to be on the current side (rather than capital). Measures to attract FDI and strengthen the business environment will also be important. The gradual pace of reform should continue during times of higher oil prices and government spending should be very much targeted towards boosting investment rather than on increasing handouts, though developing an effective social protection framework to support the most vulnerable is important. Greater diversification and further developing the private sector will also be neces-sary for increasing the employment opportunities for nationals.


242

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use

rs r

aise

d by

USD

0.5

per

MM

Btu

per

yea

r.Ja

n-15

Pric

e of

nat

ural

gas

sol

d to

indu

stri

al s

ecto

r do

uble

d to

USD

3 pe

r M

MB

tu fr

om U

SD1.

5 pe

r M

MB

tu, t

o be

follo

wed

by

a 3%

in

crea

se p

er y

ear.

Jan-

16O

man

rai

ses

gaso

line

and

dies

el p

rice

s—su

per

incr

ease

d 33

.3%

, reg

ular

22.

8%, d

iese

l 9.6

%. F

rom

Feb

ruar

y 20

16, f

uel p

rice

s ad

just

ed m

onth

ly in

line

with

inte

rnat

iona

l pri

ce m

ovem

ents

.M

ar-1

6T

he P

ublic

Aut

hori

ty fo

r W

ater

and

Ele

ctri

city

(PA

EW

) ra

ised

the

wat

er p

rice

s fo

r go

vern

men

t, c

omm

erci

al a

nd in

dust

rial

bo

dies

to

a fla

t ra

te o

f 3.5

bai

za (

bz)

per

gallo

n, u

p fr

om t

he e

arlie

r 3b

z. T

he a

djus

ted

pric

e is

stil

l bel

ow t

he a

vera

ge c

ost

of

prod

uctio

n an

d di

stri

butio

n of

wat

er o

f nea

rly

7bz

per

gallo

n.Ju

l-16

Om

an’s

Pub

lic A

utho

rity

for

Civ

il A

viat

ion

(PA

CA

) an

noun

ces

that

it w

ill r

aise

fees

cha

rged

for

air

traf

fic t

hrou

gh t

he

Sulta

nate

. Out

boun

d ai

rlin

e pa

ssen

gers

will

hav

e to

pay

OM

R2

extr

a as

tax

for

ever

y tr

avel

from

Om

an a

irpo

rts

from

1 J

uly.

Jan-

17O

man

intr

oduc

ed c

ost

refle

ctiv

e el

ectr

icity

tar

iffs

for

larg

e in

dust

rial

, com

mer

cial

and

gov

ernm

ent

cons

umer

s fr

om 1

Jan

uary

20

17, e

ffec

tivel

y en

ding

sub

sidi

es fo

r su

ch c

usto

mer

s. A

hig

her

tari

ff r

ate

will

be

appl

ied

to a

ppro

xim

atel

y 10

K e

lect

rici

ty

acco

unts

tha

t co

nsum

e ov

er 1

50 m

egaw

atts

per

hou

r ea

ch y

ear.

Offi

cial

est

imat

es s

ugge

st t

hat

this

wou

ld im

pact

aro

und

1% o

f us

ers,

whi

ch t

oget

her

use

c. 3

0% o

f the

ele

ctri

city

out

put

and

acco

unt

for

20%

of g

over

nmen

t su

bsid

ies

for

pow

er g

ener

atio

n pe

r ye

ar. T

he A

utho

rity

for

Ele

ctri

city

Reg

ulat

ion

(AE

R)

has

indi

cate

d th

at t

he s

ubsi

dy r

efor

m s

houl

d am

ount

to

arou

nd

OM

R10

0 m

illio

n, w

hich

we

estim

ate

at a

roun

d 1%

of 2

017

GD

P.Fe

b-17

Gen

eral

cor

pora

te in

com

e ta

x ra

te r

aise

d fr

om 1

2% t

o 15

%; m

inim

um t

axab

le in

com

e ex

empt

ion

of O

MR

30,

000

rem

oved

.

(con

tinu

ed)


244

Apr

-17

Cos

t of

sho

rt s

tay

tour

ist

visa

s w

as r

aise

d to

OM

R20

from

the

pre

viou

s O

MR

5. T

he le

ngth

of s

tay

for

the

visa

has

bee

n in

crea

sed

from

10

days

to

a m

onth

, with

furt

her

exte

nsio

ns p

ossi

ble.

Jan-

19O

man

Oil

Com

pany

Exp

lora

tion

& P

rodu

ctio

n (O

OC

EP)

, a s

ubsi

diar

y of

Om

an O

il C

ompa

ny (

OO

C),

sol

d a

10%

in t

he

gian

t K

hazz

an g

as fi

eld

and

proj

ect

(Blo

ck 6

1) t

o M

alay

sia’

s Pe

tron

as. T

he d

eal w

as a

gree

d in

Oct

ober

201

8 th

roug

h th

e tr

ansa

ctio

n lik

ely

com

plet

ed e

ither

in e

nd 2

018

or e

arly

201

9M

ar-1

9R

evis

ed t

ariff

s fo

r dr

inki

ng w

ater

sup

plie

d to

bot

h re

side

ntia

l and

com

mer

cial

est

ablis

hmen

ts a

nnou

nced

. Wat

er t

ariff

for

resi

dent

ial e

stat

es is

OM

R0.

002/

gallo

n fo

r up

to

5000

gal

lons

. Onc

e th

e m

onth

ly c

onsu

mpt

ion

pass

es 5

001

gallo

ns t

hen

the

cost

will

incr

ease

to

OM

R0.

0025

/ga

llon.

The

tar

iff fo

r go

vern

men

t in

stitu

tions

has

incr

ease

d fr

om O

MR

0.00

2/ga

llon

to

OM

R0.

0035

/ga

llon.

Jun-

19E

xcis

e ta

xes

intr

oduc

ed o

n ha

rmfu

l goo

ds o

n 15

Jun

e. T

obac

co, e

nerg

y dr

inks

, alc

ohol

and

por

k pr

oduc

ts w

ill a

ll be

tax

ed a

t 10

0%, w

ith a

50%

levy

on

carb

onat

ed s

oft

drin

ks. O

man

rev

ised

the

impo

sed

exci

se t

ax o

n al

coho

l to

50%

for

a si

x-m

onth

pe

riod

late

r in

Jun

e ac

cord

ing

to t

he M

inis

try

of F

inan

ce.

Qat

arJa

n-11

Pum

p pr

ices

of g

asol

ine

rais

ed 2

5% fo

r su

per

97 o

ctan

e (t

o Q

AR

1.1

per

liter

) an

d 30

% fo

r di

esel

(to

QA

R1

per

liter

).M

ay-1

4D

iese

l pri

ces

rais

ed 5

0% t

o Q

AR

1.50

(U

SD0.

41)

per

liter

.O

ct-1

5W

ater

and

ele

ctri

city

pri

ces

rais

ed a

nd t

iere

d ac

cord

ing

to c

onsu

mpt

ion.

Jan-

16T

he p

rice

of s

uper

pet

rol w

as r

aise

d by

30%

, whi

lst

regu

lar

petr

ol in

crea

sed

by 3

5%.

May

-16

Qat

ar d

ereg

ulat

es g

asol

ine

and

dies

el p

rice

s.A

ug-1

6Pa

ssen

ger

leav

ing

Qat

ar fr

om D

oha’

s H

amad

Int

erna

tiona

l Air

port

, inc

ludi

ng t

rans

it pa

ssen

gers

, will

be

char

ged

QA

R35

(U

SD9.

61)

for

usin

g ai

rpor

t fa

cilit

ies.

The

cha

rge

will

app

ly t

o tic

kets

issu

ed a

fter

Aug

. 30

and

for

any

trav

el s

tart

ing

on D

ec.

1 on

war

ds a

nd w

ould

be

used

to

“fur

ther

incr

ease

the

air

port

’s c

apac

ity a

nd in

vest

in n

ew in

fras

truc

ture

”.Ja

n-20

19T

he p

rice

s of

alc

ohol

, ene

rgy

drin

ks a

nd t

obac

co p

rodu

cts

have

sin

ce r

isen

by

100%

and

sug

ary

drin

ks b

y 50

%.

Saud

i Ara

bia

Jul-

10A

vera

ge p

rice

of e

lect

rici

ty s

old

to n

on-i

ndiv

idua

l use

rs r

aise

d m

ore

than

20%

. Som

e 43

% o

f tot

al c

onsu

mpt

ion

impa

cted

.D

ec-1

5Pr

ice

of w

ater

rai

sed

to S

AR

9 (f

rom

SA

R4)

per

cub

ic m

eter

for

corp

orat

e, in

dust

rial

and

gov

ernm

ent

entit

ies.

Fuel

pri

ces

rais

ed, i

nclu

ding

95

octa

ne g

asol

ine

by 5

0% t

o U

SD0.

24 p

er li

ter

and

low

er-g

rade

91

octa

ne b

y 67

%.

Jan-

16Pr

ices

of n

atur

al g

as, k

eros

ene,

cru

de o

il, h

eavy

fuel

oil,

eth

ane

and

buta

ne in

crea

sed.

Ele

ctri

city

tar

iff r

ates

for

resi

dent

ial,

com

mer

cial

and

gov

ernm

ent

user

s ra

ised

by

an a

vera

ge o

f rou

ghly

43%

. Low

-co

nsum

ptio

n us

ers

exem

pt.

Tab

le 9

.4

(con

tinue

d)


245

Jun-

16Sa

udi A

rabi

a’s

cabi

net

appr

oved

a t

ax o

n un

deve

lope

d ur

ban

land

, whi

ch h

ad b

een

unde

r di

scus

sion

for

over

a y

ear.

A 2

.5%

ta

x w

ill b

e le

vied

on

plot

s ex

ceed

ing

10 K

sqm

. The

Min

istr

y of

Hou

sing

will

spe

cify

whi

ch la

nd fa

lls u

nder

the

new

tax

law

, an

d a

fair

val

ue fo

r th

e la

nd w

ill b

e de

term

ined

by

a co

mm

ittee

. Lan

d ow

ners

are

req

uire

d to

reg

iste

r th

eir

plot

s w

ithin

six

m

onth

s of

the

rel

ease

of t

he fi

nal r

egul

atio

ns o

f the

tax

.O

ct-1

6Fe

es in

crea

sed

for

a nu

mbe

r of

gov

ernm

ent

serv

ices

. Thi

s in

clud

ed r

aisi

ng t

he c

osts

of p

orts

, pas

spor

ts, c

ar d

rivi

ng li

cens

es, c

ar

tran

sfer

s to

new

buy

ers,

tra

ffic

viol

atio

ns, r

enew

al o

f res

iden

ce p

erm

its fo

r do

mes

tic w

orke

rs, a

nd c

usto

ms

tari

ff p

rote

ctio

n fo

r 19

3 co

mm

oditi

es. M

oreo

ver,

the

pric

e of

a t

hree

-mon

th m

ulti-

entr

y vi

sa w

as in

crea

sed

to S

AR

500

(whi

ch w

as p

revi

ousl

y th

e co

st fo

r a

six-

mon

th o

ne).

The

new

fee

for

a tw

o-ye

ar m

ulti-

entr

y vi

sa w

as r

aise

d to

SA

R80

00 (

USD

2133

).O

ct-1

6C

hang

es t

o pu

blic

sec

tor

wag

es a

nd b

enefi

ts:

•

Sala

ries

of m

inis

ters

(or

tho

se o

f min

iste

rial

ran

k) r

educ

ed b

y 20

%;

•

A 1

5% r

educ

tion

in t

he a

nnua

l sub

sidy

gra

nted

to

Shou

ra C

ounc

il m

embe

rs fo

r ho

usin

g an

d fu

rnis

hing

;

• A

15%

red

uctio

n in

the

lum

p su

m p

aid

to S

hour

a C

ounc

il m

embe

rs fo

r th

eir

car

mai

nten

ance

and

fuel

cost

s fo

r fo

ur y

ears

;

• O

vert

ime

bonu

ses

wer

e cu

rbed

at

betw

een

25–5

0% o

f bas

ic s

alar

ies;

•

No

annu

al in

crem

ent

for

next

yea

r;

• H

irin

g an

d re

new

al o

f con

trac

ts fo

r ex

patr

iate

wor

kers

in n

on-e

ssen

tial s

ecto

rs s

uspe

nded

;

• A

ll ap

poin

tmen

ts in

vac

ant

post

s ha

lted;

•

Prov

isio

ns o

f veh

icle

s fo

r se

nior

offi

cial

s su

spen

ded

until

nex

t ye

ar;

•

Ann

ual l

eave

may

no

long

er e

xcee

d 30

day

s;

• M

onth

ly t

rans

port

atio

n al

low

ance

for

empl

oyee

s du

ring

vac

atio

n da

ys s

topp

ed.

Apr

-17

Cut

s to

pub

lic s

ecto

r w

ages

and

ben

efits

intr

oduc

ed in

Sep

tem

ber

2016

wer

e re

vers

ed v

ia a

roy

al d

ecre

e by

Kin

g Sa

lman

bin

A

bdul

aziz

Al S

aud

on 2

2 A

pril.

The

dec

ree

rein

stat

ed a

ll al

low

ance

s, fi

nanc

ial b

enefi

ts a

nd b

onus

es t

o pu

blic

em

ploy

ees

and

mili

tary

sta

ff. M

oreo

ver,

a tw

o-m

onth

sal

ary

bonu

s fo

r fo

rces

figh

ting

on t

he fr

ontli

ne in

Yem

en w

as a

nnou

nced

.Ju

n-17

Saud

i Ara

bia

intr

oduc

es a

n ex

cise

tax

on

harm

ful p

rodu

cts

on 1

1 Ju

ne. T

obac

co a

nd e

nerg

y dr

inks

tax

ed a

t 10

0% a

nd

carb

onat

ed d

rink

s (e

x-sp

arkl

ing

wat

er)

at 5

0%.

Jun-

17A

ll al

low

ance

s an

d bo

nuse

s to

civ

il se

rvan

ts a

nd m

ilita

ry p

erso

nnel

tha

t w

ere

canc

elle

d in

Sep

tem

ber

2016

are

ret

roac

tivel

y re

inst

ated

in J

une

2017

. Thi

s w

as a

nnou

nced

at

the

sam

e tim

e of

Pri

nce

Moh

amm

edbi

n Sa

lman

’s a

ppoi

ntm

ent

as c

row

n pr

ince

in J

une

2017

.

(con

tinu

ed)


246

Jul-

17Sa

udi A

rabi

a al

so s

tart

ed r

aisi

ng fe

es o

n th

e de

pend

ents

of e

xpat

riat

e w

orke

rs fr

om 1

Jul

y 20

17, a

t SA

R10

0 pe

r m

onth

. The

fe

es w

ill h

ave

to b

e pa

id in

adv

ance

at

the

time

of r

enew

al o

f the

wor

k vi

sas.

Jan-

18V

AT

intr

oduc

ed a

t 5%

.Ja

n-18

The

Sau

di g

over

nmen

t ra

ised

ele

ctri

city

(re

side

ntia

l and

com

mer

cial

) an

d fu

el p

rice

s on

1 J

anua

ry 2

018,

with

the

mag

nitu

de

of t

he r

ise

cons

ider

ably

gre

ater

tha

n in

the

firs

t ro

und

of s

ubsi

dy r

efor

ms

in 2

016.

The

pri

ce o

f 95

octa

ne p

etro

l jum

ped

by

126%

, whi

lst

low

er g

rade

91

octa

ne in

crea

sed

by 8

2% (

both

incl

udin

g V

AT

). N

ew r

esid

entia

l ele

ctri

city

tar

iffs

will

see

cos

ts

doub

le o

r tr

iple

for

low

er-u

se c

usto

mer

s co

mpa

red

with

the

pre

viou

s ra

tes.

Jan-

18Fe

e fo

r co

mpa

nies

on

expa

tria

te la

bor

intr

oduc

ed. F

or 2

018,

the

fee

is SA

R30

0 pe

r m

onth

on

the

num

ber

of e

xpat

riate

s eq

ual

to n

atio

nals

and

SAR

400

per

mon

th o

n ex

patr

iate

s m

ore

than

nat

iona

ls. T

he fe

e is

due

to in

crea

se in

201

9 an

d 20

20.

Feb-

19M

inis

try

of M

unic

ipal

and

Rur

al A

ffai

rs (

MM

RA

) ha

s ap

prov

ed e

xecu

tive

regu

latio

ns fo

r le

vyin

g fe

es o

n va

riou

s m

unic

ipal

se

rvic

es s

tart

ing

3 Fe

brua

ry. A

nnua

l fee

s w

ill b

e im

pose

d fo

r ga

rbag

e co

llect

ion,

incl

udin

g w

aste

from

fuel

sta

tions

, apa

rtm

ent

build

ings

, hot

els

and

reso

rts.

Ser

vice

fees

will

als

o be

levi

ed fo

r is

suin

g lic

ense

s fo

r th

e co

nstr

uctio

n of

new

bui

ldin

gs o

r fo

r th

e ex

pans

ion

of e

xist

ing

build

ings

. The

reg

ulat

ions

will

str

eam

line

the

licen

sing

of c

inem

a ha

lls a

nd t

heat

ers

to b

ring

the

m in

line

w

ith o

ther

com

mer

cial

act

iviti

es.

Apr

-19

Ret

ail f

uel p

rice

s w

ere

rais

ed—

by 4

% fo

r 95

oct

ane

petr

ol t

o SA

R2.

1 pe

r lit

re (

from

SA

R2.

02)

and

5.1%

for

91 o

ctan

e to

SA

R1.

44 p

er li

tre

(fro

m S

AR

1.37

). N

ew p

rice

s ef

fect

ive

14 A

pril

2019

. Ret

ail f

uel p

rice

s w

ill s

ubse

quen

tly b

e se

t on

a

quar

terl

y ba

sis,

sub

ject

to

crud

e oi

l exp

ort

pric

es.

May

-19

Saud

i Ara

bia

has

impo

sed

a sp

ecia

l tax

on

elec

tron

ic c

igar

ette

s an

d su

gary

dri

nks,

ext

endi

ng s

imila

r ex

cise

tax

es in

trod

uced

in

2017

. A 1

00%

tax

wou

ld b

e le

vied

on

elec

tron

ic c

igar

ette

s an

d pr

oduc

ts u

sed

in t

hem

, and

a 5

0% t

ax o

n su

gare

d dr

inks

. Sau

di

alre

ady

had

a 10

0% t

ax o

n ci

gare

ttes

and

tob

acco

pro

duct

s, a

100

% t

ax o

n en

ergy

dri

nks

and

a 50

% o

ne o

n fiz

zy d

rink

s.U

AE

2010

UA

E r

aise

s fu

el p

rice

s at

pet

rol s

tatio

ns t

wic

e in

201

0 in

initi

al g

radu

al m

oves

to

liber

aliz

e th

e m

arke

t. G

asol

ine

pric

es r

ise

by

som

e A

ED

0.35

per

lite

r.Ja

n-11

Ele

ctri

city

and

wat

er c

onsu

mpt

ion

tari

ffs

in D

ubai

incr

ease

d 15

%.

Jan-

15W

ater

and

ele

ctri

city

pri

ces

rais

ed in

Abu

Dha

bi fo

r na

tiona

ls a

nd e

xpat

riat

es. W

ater

pri

ce fo

r ex

patr

iate

s ra

ised

by

170%

, el

ectr

icity

by

40%

.A

ug-1

5U

AE

der

egul

ates

gas

olin

e an

d di

esel

pri

ces.

Gas

olin

e pr

ices

initi

ally

incr

ease

som

e 25

% (

depe

ndin

g on

gra

de);

die

sel p

rice

s cu

t by

som

e 29

%. F

uel p

rice

s ad

just

ed m

onth

ly in

line

with

inte

rnat

iona

l pri

ce m

ovem

ents

.Ja

n-16

Wat

er a

nd e

lect

rici

ty p

rice

s ra

ised

for

high

er-c

onsu

mpt

ion

expa

tria

tes

in A

bu D

habi

.

Tab

le 9

.4

(con

tinue

d)


247

Apr

-16

Abu

Dha

bi’s

AD

NO

C D

istr

ibut

ion

incr

ease

d th

e re

tail

pric

e of

uns

ubsi

dize

d liq

uefie

d pe

trol

eum

gas

(L

PG)

cylin

ders

for

Apr

il 20

16. T

he c

ost

of a

n 11

.3 k

g cy

linde

r w

as in

crea

sed

by 9

.5%

, whi

lst

a pr

ice

of a

22.

7 kg

cyl

inde

r w

as r

aise

d by

10.

8%. T

he

new

pri

ce fo

r L

PG w

ill b

e an

noun

ced

on t

he 1

0th

of e

very

mon

th b

ased

on

glob

al p

rice

s.A

pr-1

6A

bu D

habi

intr

oduc

ed a

3%

mun

icip

al fe

e—w

ill b

e ch

arge

d on

the

ann

ual v

alue

of e

xpat

riat

es’ r

enta

l con

trac

ts. T

he m

inim

um

char

ge w

ill b

e A

ED

450

per

year

, with

the

fee

back

date

d to

the

beg

inni

ng o

f Mar

ch.

May

-16

Dub

ai in

crea

sed

park

ing

fees

, with

the

pri

ce d

oubl

ing

in c

erta

in a

reas

(ef

fect

ive

28 M

ay).

Pol

ice

to s

tart

cha

rgin

g fo

r so

me

serv

ices

.Ju

n-16

Abu

Dha

bi in

trod

uces

a 4

% m

unic

ipal

ity fe

e on

hot

el b

ills

and

an A

ED

15 c

harg

e pe

r ni

ght

per

room

. The

fees

will

be

colle

cted

by

the

Abu

Dha

bi T

ouri

sm a

nd C

ultu

re A

utho

rity

(T

CA

) an

d ad

ded

to t

he g

over

nmen

t bu

dget

of t

he D

epar

tmen

t of

Mun

icip

al A

ffai

rs. D

ubai

intr

oduc

ed a

fee

of b

etw

een

AE

D7

for

budg

et h

otel

s an

d gu

esth

ouse

s an

d A

ED

20 fo

r fiv

e-st

ar

hote

ls a

nd lu

xury

hot

el a

part

men

ts in

201

4 pe

r ro

om p

er n

ight

.Ju

n-16

Pass

enge

rs t

rave

ling

from

an

airp

ort

in A

bu D

habi

and

Dub

ai p

ay a

n A

ED

35 d

epar

ture

fee

from

30

June

. Sha

rjah

had

an

noun

ced

a si

mila

r m

ove

in A

pril

2016

.Ju

l-16

Shar

jah

Mun

icip

ality

incr

ease

s te

nanc

y at

test

atio

n fe

e to

4%

, fro

m 2

%.

Jan-

17W

ater

and

ele

ctri

city

pri

ces

rais

ed fo

r co

nsum

ers,

cor

pora

te a

nd g

over

nmen

t en

titie

s.Ju

n-17

Abu

Dha

bi M

unic

ipal

ity in

crea

ses

the

fare

s fo

r ta

xis.

The

sta

rtin

g fa

re h

as b

een

incr

ease

d to

AE

D5,

from

AE

D3.

5 ea

rlie

r. T

he

char

ge fo

r ev

ery

kilo

met

er h

as r

isen

to

AE

D1.

82 fr

om A

ED

1.6.

Oct

-17

Exc

ise

tax

intr

oduc

ed o

n ha

rmfu

l pro

duct

s on

unh

ealth

y pr

oduc

ts—

100%

tax

on

toba

cco

prod

ucts

and

ene

rgy

drin

ks, w

ith

carb

onat

ed d

rink

s (e

x-sp

arkl

ing

wat

er)

at 5

0%. T

he t

ax is

exp

ecte

d to

rai

se c

.AE

D 7

bill

ion

per

annu

m.

Jan-

18V

AT

intr

oduc

ed a

t 5%

.Ju

n-18

Abu

Dha

bi r

esid

entia

l mun

icip

ality

fees

rai

sed

to 5

% o

f the

val

ue o

f an

annu

al r

enta

l con

trac

t fo

r vi

llas

and

apar

tmen

ts, u

p fr

om 3

%.

Sour

ce: I

MF,

var

ious

med

ia s

ourc

es, A

DC

B e

stim

ates


248

aPP

En

dIx

b: u

aE

KE

y Po

lIc

IEs

an

no

un

cE

d t

o s

uPP

or

t E

co

no

mIc

ac

tIV

Ity

Tab

le 9

.5

UA

E: K

ey p

olic

ies

anno

unce

d in

201

8

UA

E w

ide

May

18

Leg

isla

tion

intr

oduc

ed fo

r a

VA

T r

ever

se-c

harg

e m

echa

nism

for

the

who

lesa

le t

rade

in g

old

and

jew

elry

to

supp

ort

the

diam

ond

and

gold

sec

tors

.M

ay-1

8A

one

-mon

th s

alar

y bo

nus

for

all g

over

nmen

t em

ploy

ees

anno

unce

d to

cel

ebra

te 1

00 y

ears

sin

ce t

he b

irth

of t

he U

AE

’s

Foun

ding

Fat

her,

Shei

kh Z

ayed

. The

bon

us w

as fo

r al

l ser

ving

and

ret

ired

gov

ernm

ent

empl

oyee

s (c

ivili

ans

and

mili

tary

) an

d be

nefic

iari

es o

f soc

ial w

elfa

re. T

he b

onus

was

bas

ed o

n th

e ba

sic

mon

thly

sal

ary

with

a m

axim

um o

f AE

D50

K a

nd a

min

imum

of

AE

D5K

with

dis

burs

emen

t m

ade

in e

arly

-Jun

e. T

he b

onus

pay

men

ts t

otal

ed A

ED

1.6

billi

on (

USD

436

mill

ion)

, whi

ch w

e es

timat

e w

ill e

quat

e to

c.0

.1%

of G

DP.

May

-18

UA

E c

abin

et a

ppro

ved

chan

ges

to r

ules

gov

erni

ng e

xpat

riat

e re

side

ncy

and

fore

ign

owne

rshi

p of

com

pani

es. T

he c

hang

es w

ill

allo

w 1

00%

ow

ners

hip

of b

usin

esse

s by

glo

bal i

nves

tors

and

per

mit

resi

denc

y vi

sas

for

up t

o 10

yea

rs fo

r pr

ofes

sion

als

in c

erta

in

sect

ors

and

fore

ign

inve

stor

s. F

ive-

year

stu

dent

vis

as w

ere

also

ann

ounc

ed w

ith e

xcep

tiona

l uni

vers

ity g

radu

ates

elig

ible

for

10-y

ear

visa

s. R

efor

ms

are

to b

e in

trod

uced

by

end-

2018

.Ju

n-18

A n

umbe

r of

vis

a re

form

s w

ere

adop

ted.

The

pre

viou

s m

anda

tory

dep

osit

of A

ED

3000

per

wor

ker

in t

he p

riva

te s

ecto

r w

as

repl

aced

by

a ne

w in

sura

nce

sche

me

that

will

cos

t on

ly A

ED

60 a

nnua

lly p

er w

orke

r (e

ffec

tive

Oct

ober

201

8). T

his

will

red

uce

the

burd

en o

n em

ploy

ers

by a

roun

d A

ED

14 b

illio

n, a

ccor

ding

to

offic

ial e

stim

ates

. In

a fu

rthe

r bi

d to

sup

port

tou

rism

, tra

nsit

pass

enge

rs w

ill b

e ex

empt

from

all

entr

y fe

es fo

r th

e fir

st 4

8 ho

urs

of t

heir

vis

it to

the

UA

E. T

he v

isa

may

be

exte

nded

for

up t

o 96

hou

rs fo

r a

fee

of A

ED

50.

Jun-

18U

AE

Cen

tral

Ban

k is

sues

new

fee

caps

(43

cat

egor

ies)

for

reta

il ba

nkin

g fe

es t

o be

rev

iew

ed a

nnua

lly.

Sep-

18V

AT

ref

und

sche

me

for

tour

ists

ann

ounc

ed, d

ue t

o be

intr

oduc

ed in

end

-201

8.Se

p-18

Ret

iree

vis

a an

noun

ced,

whi

ch w

ill a

llow

exp

atri

ates

age

d 55

and

ove

r to

obt

ain

a fiv

e-ye

ar r

esid

ence

vis

a. T

he la

w w

ill c

ome

into

eff

ect

in 2

019.

App

lican

ts w

ill b

e re

quir

ed t

o ha

ve (

1) a

n in

vest

men

t in

a p

rope

rty

wor

th a

t le

ast

AE

D2

mill

ion;

(2)

fin

anci

al s

avin

gs o

f no

less

tha

n A

ED

1 m

illio

n; o

r (3

) an

act

ive

inco

me

of n

o le

ss t

han

AE

D20

K p

er m

onth

.N

ov-1

8Fe

dera

l Law

issu

ed r

egar

ding

fore

ign

dire

ct in

vest

men

t (n

ew F

DI

law

) an

noun

ced

in S

epte

mbe

r, w

hich

wen

t in

to fo

rce

in

Nov

embe

r up

on it

s pu

blic

atio

n in

the

Offi

cial

Gaz

ette

. The

new

FD

I la

w is

the

late

st in

a n

umbe

r of

pol

icie

s im

plem

ente

d to

lib

eral

ize

dom

estic

mar

kets

and

incr

ease

the

UA

E’s

com

petit

iven

ess

glob

ally

. The

new

FD

I la

w lo

oks

to a

ttra

ct fo

reig

n in

vest

men

t in

cer

tain

spe

cifie

d bu

sine

ss s

ecto

rs t

o be

ten

tativ

ely

iden

tified

in e

arly

201

9 (p

ositi

ve li

st),

whi

ch w

ill b

e in

elig

ible

fo

r m

ajor

ity fo

reig

n ow

ners

hip.


249

Jan-

19T

he U

AE

Cab

inet

app

rove

d lo

ng-t

erm

vis

a sy

stem

for

inve

stor

s, e

ntre

pren

eurs

, spe

cial

ized

tal

ents

and

res

earc

hers

in t

he fi

elds

of

sci

ence

, kno

wle

dge

and

outs

tand

ing

stud

ents

. The

new

sys

tem

defi

nes

two

cate

gori

es fo

r in

vest

ors:

(1)

inve

stor

s in

a p

rope

rty

of a

val

ue o

f AE

D5

mill

ion

or m

ore

will

be

gran

ted

a re

side

nce

for

five

year

s; a

nd (

2) a

ren

ewab

le 1

0-ye

ar v

isa

will

be

prov

ided

to

fore

igne

rs w

ith in

vest

men

ts in

the

UA

E o

f at

leas

t A

ED

10 m

illio

n, a

s lo

ng a

s no

n-re

al e

stat

e as

sets

acc

ount

for

at le

ast

60%

pe

rcen

t of

the

tot

al. T

he a

mou

nt in

vest

ed s

hall

be w

holly

ow

ned

by t

he in

vest

or a

nd n

ot lo

aned

. Inv

esto

rs c

an b

ring

spo

uses

an

d ch

ildre

n in

to t

he c

ount

ry. O

ther

rul

es o

ffer

five

-yea

r vi

sas

to e

ntre

pren

eurs

and

10-

year

vis

as fo

r sc

ient

ists

and

res

earc

hers

w

ith t

op q

ualifi

catio

ns. O

utst

andi

ng s

tude

nts

can

stay

for

five

year

s. T

he n

ew v

isas

wer

e an

noun

ced

in N

ovem

ber

2018

with

im

plem

enta

tion

from

Jan

uary

201

9.M

ay-1

9A

nnou

nces

per

man

ent

resi

denc

y fr

amew

ork

(Gol

d C

ard

sche

me)

for

inve

stor

s an

d ex

cept

iona

lly s

kille

d pr

ofes

sion

als.

May

-19

Fess

for

1500

gov

ernm

ent

serv

ices

per

form

ed b

y th

e in

teri

or, e

cono

my

and

hum

an r

esou

rce

min

istr

ies

wer

e cu

t or

am

ende

d to

he

lp lo

wer

the

cos

t of

doi

ng b

usin

ess.

(ef

fect

ive

1 Ju

ly)

The

mov

e w

as a

imed

to

impr

ove

the

busi

ness

env

iron

men

t an

d bo

ost

grow

th.

Jun-

19B

road

enin

g of

the

10-

year

vis

a pr

ogra

m (

Gol

d C

ard

sche

me)

ann

ounc

ed fo

r sk

illed

pro

fess

iona

ls, f

rom

the

sta

ndar

d of

thr

ee

year

s. T

he c

rite

ria

for

elig

ibili

ty: (

1) m

onth

ly s

alar

y of

at

leas

t A

ED

30,0

00 (

USD

8174

); (

2) a

bac

helo

r’s

degr

ee; a

nd (

3) a

t le

ast

five

year

s of

wor

k ex

peri

ence

in t

he U

AE

.Ju

l-19

The

UA

E C

abin

et h

as a

nnou

nced

13

broa

d se

ctor

s el

igib

le fo

r up

to

100%

fore

ign

owne

rshi

p un

der

a la

w r

atifi

ed la

st

Nov

embe

r. T

he li

st in

clud

es 1

22 e

cono

mic

act

iviti

es a

cros

s 13

sec

tors

, inc

ludi

ng r

enew

able

ene

rgy,

spa

ce, a

gric

ultu

re,

man

ufac

turi

ng, t

rans

port

, log

istic

s, h

ospi

talit

y, fo

od s

ervi

ces,

info

rmat

ion

and

com

mun

icat

ions

, am

ongs

t ot

hers

. Pre

viou

sly,

fo

reig

n in

vest

ors

coul

d ho

ld u

p to

49%

of a

com

pany

reg

iste

red

in t

he U

AE

, unl

ess

it w

as in

a d

esig

nate

d fr

ee t

rade

zon

e, a

nd

wou

ld h

ave

to p

artn

er w

ith a

n E

mir

ati i

nves

tor

who

wou

ld h

old

the

rem

aini

ng 5

1%. E

ach

emir

ate

will

dec

ide

the

max

imum

fo

reig

n ow

ners

hip

allo

wed

with

in it

s ju

risd

ictio

n.Ju

l-19

The

Min

istr

y of

Hum

an R

esou

rces

and

Em

irat

isat

ion

(MO

HR

E)

redu

ced

fees

for

145

serv

ices

and

tra

nsac

tions

, inc

ludi

ng 5

0%

to 9

4% c

ut in

fees

for

17 s

ervi

ces.

Abu

Dha

biJu

n-18

Abu

Dha

bi h

as a

nnou

nced

an

AE

D 5

0 bi

llion

(U

SD 1

3.6

billi

on)

pack

age

to b

oost

eco

nom

ic g

row

th o

ver

the

next

thr

ee y

ears

. A

bu D

habi

’s E

xecu

tive

Cou

ncil

is t

aske

d w

ith p

repa

ring

det

aile

d ex

ecut

ion

plan

s ov

er t

he fo

llow

ing

90 d

ays.

Jun-

18A

bu D

habi

cut

s th

e to

urism

fee

appl

ied

to h

otel

roo

ms

and

outle

ts fr

om 6

% to

3.5

%, w

hilst

the

mun

icip

ality

fee

was

hal

ved

to 2

%.

(con

tinu

ed)


250

Sep-

18A

bu D

habi

Dep

artm

ent o

f Eco

nom

ic D

evel

opm

ent s

tart

ed r

ollin

g ou

t dua

l lic

ense

s al

low

ing

com

pani

es in

free

zon

es to

est

ablis

h an

ons

hore

bra

nch.

The

firs

t pha

se is

ope

n to

com

pani

es h

eadq

uart

ered

in A

bu D

habi

and

bas

ed in

one

of i

ts fr

ee z

ones

. The

se

cond

pha

se w

ill a

llow

mor

e co

mpa

nies

to q

ualif

y fo

r a

dual

lice

nse.

The

dua

l lic

ense

s ar

e on

e of

10

stra

tegi

c in

itiat

ives

link

ed to

a

thre

e-ye

ar A

ED

50 b

illio

n st

imul

us p

acka

ge fo

r th

e em

irate

. Phy

sical

loca

tions

will

no

long

er b

e re

quir

ed fo

r du

al li

cens

es,

ther

eby

redu

cing

the

cost

of a

dua

l lic

ense

by

c.80

% fr

om a

sta

ndar

d lic

ense

, acc

ordi

ng to

the

depa

rtm

ent.

Sep-

18G

reat

er d

etai

ls a

bout

Abu

Dha

bi’s

thr

ee-y

ear

AE

D50

bill

ion

pack

age,

cal

led

Gha

dan

2021

(T

omor

row

202

1), w

ere

appr

oved

. O

f thi

s pa

ckag

e, A

ED

20 b

illio

n w

ill b

e al

loca

ted

for

2019

, whi

lst

all u

ndis

pute

d pr

ivat

e se

ctor

due

s an

d re

ceiv

able

s w

ill b

e se

ttle

d be

fore

mid

-Nov

embe

r 20

18. I

n 1Q

2019

, thr

ee t

o fiv

e pr

ojec

ts w

ith a

val

ue o

f ove

r A

ED

3 bi

llion

will

be

anno

unce

d in

ar

eas

such

as

hous

ing,

roa

ds, i

nfra

stru

ctur

e an

d he

alth

care

. A c

redi

t gu

aran

tee

prog

ram

is e

xpec

ted

to b

e la

unch

ed la

ter

in 2

018

to fa

cilit

ate

Dh1

0bn

in fi

nanc

ing

for

SME

s fr

om lo

cal b

anks

ove

r th

e ne

xt t

hree

yea

rs a

nd a

PPP

law

is e

xpec

ted

soon

.D

ec-1

8Se

rvic

e fe

es fo

r th

e re

gist

ratio

n of

pro

pert

ies,

ren

tal c

ontr

acts

and

oth

er t

rans

actio

ns a

t th

e A

bu D

habi

Mun

icip

ality

hav

e be

en

redu

ced

by u

p to

50%

, acc

ordi

ng t

o a

new

gov

ernm

ent

reso

lutio

n. A

bu D

habi

has

als

o ex

empt

ed a

ll bu

sine

sses

issu

ed w

ith n

ew

licen

ses

from

loca

l fee

s fo

r tw

o ye

ars

as t

he C

apita

l loo

ks t

o at

trac

t in

vest

ors.

In

the

new

res

olut

ion,

75

mun

icip

ality

ser

vice

s fe

es

wer

e ca

ncel

led

and

23 m

unic

ipal

ity fe

es w

ere

redu

ced

by 1

0% t

o 50

%.

Jan-

19In

dust

rial

pro

duct

s an

d m

ater

ials

shi

pped

into

Abu

Dha

bi w

ill b

e ex

empt

from

cus

tom

s ta

x fr

om 1

5 Ja

nuar

y 20

19. T

he

exem

pted

impo

rts

incl

ude

item

s su

ch a

s ra

w m

ater

ials

, mac

hine

ry, e

quip

men

t an

d sp

are

part

s. T

he m

ove

form

s pa

rt o

f the

A

ED

50 b

illio

n st

imul

us p

rogr

am a

nnou

nced

in 2

018

and

aim

ed a

t bo

ostin

g th

e in

dust

rial

sec

tor.

The

new

wai

vers

will

app

ly

larg

ely

to g

oods

hea

ded

for

the

emir

ate’

s in

dust

rial

free

zon

es, s

uch

as t

he K

halif

a In

dust

rial

Zon

e an

d th

e K

halif

a Po

rt F

ree

Tra

de Z

one.

Mar

-19

App

rove

d a

seri

es o

f inc

entiv

e pa

ckag

es w

orth

AE

D1

billi

on (

USD

272

mill

ion)

to

supp

ort

agri

cultu

ral t

echn

olog

y pr

ojec

ts. T

he

ince

ntiv

es a

im t

o en

cour

age

the

com

pani

es t

o bu

ild a

nd g

row

a p

rese

nce

in A

bu D

habi

, est

ablis

hing

the

em

irat

e as

a g

loba

l ce

nter

for

dese

rt e

nvir

onm

ent

agri

cultu

re in

nova

tion.

Mar

-19

Abu

Dha

bi A

irpo

rts

Free

Zon

e (A

DA

FZ)

has

redu

ced

busi

ness

set

up c

osts

by

mor

e th

an 6

5%, w

ith t

he a

im o

f enh

anci

ng it

s re

gion

al c

ompe

titiv

enes

s an

d at

trac

ting

new

sou

rces

of F

orei

gn D

irec

t In

vest

men

t.A

pr-1

9A

ll fo

reig

ners

will

be

entit

led

to o

wn

the

free

hold

of l

and

and

prop

ertie

s pu

rcha

sed

in in

vest

men

t zo

nes.

Pre

viou

sly,

thi

s w

as

only

per

mitt

ed fo

r U

AE

and

GC

C n

atio

nals

, with

fore

ign

inve

stor

s ge

nera

lly li

mite

d to

leas

ehol

d ar

rang

emen

ts w

ith 9

9-ye

ar

leas

es.

May

-19

Stat

e-ru

n A

bu D

habi

Inv

estm

ent

Offi

ce la

unch

ed a

n A

ED

535

mill

ion

fund

(U

SD14

5.7

mill

ion)

to

supp

ort

vent

ure

capi

tal

activ

ities

and

sta

rt-u

ps. T

he ‘G

hada

n V

entu

res

Fund

’ is

to in

crea

se t

he a

vaila

bilit

y of

cap

ital t

o st

art-

ups

base

d in

Abu

Dha

bi a

nd

to a

ttra

ct fu

nd m

anag

ers.

Thi

s is

a p

art

of A

bu D

habi

’s A

ED

50 b

illio

n G

hada

n 21

pro

gram

.

Tab

le 9

.5

(con

tinue

d)


251

May

-19

Hou

sing

loan

s w

orth

AE

D3.

4 bi

llion

(U

SD0.

92 b

illio

n) t

o be

dis

trib

uted

to

natio

nals

in t

he e

mir

ate

as p

art

of t

he fi

rst

inst

allm

ent

of t

he 2

019

hous

ing

prog

ram

, as

wel

l as

gove

rnm

ent

hous

es a

nd r

esid

entia

l plo

ts.

Jun-

19A

bu D

habi

ann

ounc

ed fu

rthe

r de

tails

of m

easu

res

linke

d to

its

Gha

dan

2021

gro

wth

sup

port

pro

gram

, ini

tially

ann

ounc

ed in

20

18. T

he m

easu

res

anno

unce

d in

clud

ed: (

1) c

redi

t gu

aran

tees

for

SME

s; (

2) in

stan

t bu

sine

ss li

cens

es; (

3) v

aria

ble

elec

tric

ity

tari

ffs

for

the

indu

stri

al s

ecto

r; a

nd (

4) s

uppo

rt fo

r ec

otou

rism

in t

he e

mir

ate.

Dub

aiM

ar-1

8D

ubai

ann

ounc

es n

o in

crea

se in

gov

ernm

ent

fees

for

next

thr

ee y

ears

.A

pr-1

8D

ubai

unv

eils

a n

ew e

cono

mic

pla

n in

tend

ed t

o bo

ost

grow

th, a

ttra

ct n

ew in

vest

men

t an

d re

duce

the

cos

t of

doi

ng b

usin

ess.

N

ew e

cono

mic

pla

ns a

nd m

easu

res

to b

oost

gro

wth

dis

cuss

ed.

Jun-

18D

ubai

’s E

xecu

tive

Cou

ncil

appr

oved

a n

umbe

r of

mea

sure

s to

boo

st g

row

th a

nd a

ttra

ct in

vest

men

t, in

clud

ing:

•

Red

ucin

g m

unic

ipal

tax

es o

n bu

sine

sses

from

5%

to

2.5%

•

Wai

ving

19

fees

rel

ated

to

the

avia

tion

sect

or a

nd a

irpl

ane

land

ing

•

Wai

ving

4%

fine

s on

late

pro

pert

y re

gist

ratio

n fo

r 60

day

s an

d

• Fr

eezi

ng p

riva

te s

choo

l fee

s fo

r th

e co

min

g ac

adem

ic y

ear

(201

8–19

).Ju

n-18

Mun

icip

ality

fees

on

sale

s at

res

taur

ants

and

hot

els

low

ered

from

10%

to

7%.

Jun-

18D

ubai

’s D

epar

tmen

t of

Eco

nom

ic D

evel

opm

ent

(DE

D)

laun

ched

a p

acka

ge t

o m

ake

it m

uch

easi

er fo

r bu

sine

sses

to

clea

r fin

es

and

rene

w t

heir

lice

nses

. The

mea

sure

s w

ill a

llow

bus

ines

ses

to p

ay t

heir

fees

and

fine

s in

eas

y in

stal

lmen

ts, f

reez

e th

eir

trad

e lic

ense

for

a ye

ar a

nd s

eek

an a

mic

able

set

tlem

ent

with

DE

D o

n co

mm

erci

al v

iola

tions

.D

ec-1

8D

EW

A a

nnou

nced

tha

t it

will

wai

ve c

harg

es fo

r ne

w c

onne

ctio

ns o

f up

to 1

50 k

W fo

r co

mm

erci

al a

nd in

dust

rial

cus

tom

ers

for

the

next

tw

o ye

ars.

Jan-

19D

ubai

ann

ounc

ed t

hat

it w

ould

mai

ntai

n th

e fa

cilit

y of

a 5

0% r

educ

tion

in fi

nes

for

busi

ness

es in

201

9Ja

n-19

Dub

ai a

nnou

nced

tha

t co

mpa

nies

in t

he t

ouri

sm in

dust

ry w

ill s

oon

be a

ble

to g

et b

ack

the

bank

gua

rant

ees

they

had

ear

lier

set

asid

e w

hen

they

sta

rted

doi

ng t

heir

bus

ines

s in

the

em

irat

e, r

elea

sing

c.A

ED

250

mill

ion.

New

bus

ines

ses

will

no

long

er n

eed

to

prov

ide

a gu

aran

tee

befo

re s

ecur

ing

a tr

ade

licen

seM

ar-1

9D

ubai

Dep

artm

ent

of F

inan

ce la

unch

ed a

sec

ond

pack

age

of e

cono

mic

gro

wth

initi

ativ

es a

imed

at

boos

ting

econ

omic

act

ivity

, fo

llow

ing

the

earl

ier

pack

age

by D

ED

. The

pac

kage

incl

udes

initi

ativ

es t

o su

ppor

t SM

Es

and

publ

ic-p

riva

te p

artn

ersh

ip.

Mar

-19

Dub

ai H

ealth

care

City

Aut

hori

ty (

DH

CA

) an

noun

ced

revi

sed

fees

for

seve

ral o

f its

hea

lthca

re, c

omm

erci

al, a

nd r

esea

rch

and

educ

atio

n of

feri

ngs.

The

initi

ativ

e ai

ms

to r

educ

e th

e co

st o

f doi

ng b

usin

ess

and

enha

ncin

g ec

onom

ic g

row

th.

Sour

ce: V

ario

us m

edia

sou

rces

, AD

CB

est

imat

es


252

rEFErEncEs

ADCB Economic Research. 2017. GCC Economic Update – Assessing the eco-nomic impact of VAT. (Published on 14 June 2017, authors Monica Malik and Shailesh Jha).

ADCB Economic Research. 2018. Oman Economic Update – Previous invest-ment paying dividends and boosting export capacity. (Published on 3 September 2018, authors Monica Malik and Thirumalai Nagesh).

ADCB Economic Research. 2019. GCC Economic Update – Fragile non-oil growth recovery with limited pick-up in momentum. (Published on 13 February 2019, authors Monica Malik and Thirumalai Nagesh).

Bloomberg. 2018. Odd One Out? Kuwait Is Struggling to Pass VAT Agreed by Gulf (published 10 May 2018, authors Fiona MacDonald and Zainab Fattah).

IMF. 2016. Diversifying Government Revenue in the GCC: Next Steps. (Date 26 October 2016) https://www.imf.org/external/np/pp/eng/2016/102616.pdf.

Institute of International Finance. 2018. Hydrocarbon Exporters Breakeven Oil Prices have declined. (Published on 1 February 2018, authors Garbis Iradian and Boban Markovic).

Kingdom of Saudi Arabia, Ministry of Finance. 2016a. 2017 Budget. https://www.mof.gov.sa/en/financialreport/budget2017/Documents/The_National_Budget.pdf.

Kingdom of Saudi Arabia. 2016b. Fiscal Balance Program, Balanced Budget 2020. https://vision2030.gov.sa/en/bb2020.

Kingdom of Saudi Arabia. 2017. Fiscal Balance Program, 2018 Update. https://vision2030.gov.sa/en/bb2020.

Reuters. 2019. Oman to delay VAT to 2021 amid sluggish growth (published 30 July 2019, author Davide Barbuscia) https://www.reuters.com/article/us-oman-econ-omy-vat/oman-to-delay-vat-to-2021-amid-sluggish-growth-idUSKCN1UP1TM.


https://www.imf.org/external/np/pp/eng/2016/102616.pdf

https://www.imf.org/external/np/pp/eng/2016/102616.pdf

https://www.mof.gov.sa/en/financialreport/budget2017/Documents/The_National_Budget.pdf



https://vision2030.gov.sa/en/bb2020



https://www.reuters.com/article/us-oman-economy-vat/oman-to-delay-vat-to-2021-amid-sluggish-growth-idUSKCN1UP1TM

https://www.reuters.com/article/us-oman-economy-vat/oman-to-delay-vat-to-2021-amid-sluggish-growth-idUSKCN1UP1TM

253

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