COVID-19 is still a force to be reckoned with. The UK government’s official scientific advisory group says that they believe it is “almost certain” that a SARS-Cov-2 variant will emerge that “leads to current vaccine failure.” SARS-CoV-2 is the virus that causes COVID-19.
Although not yet peer-reviewed, the announcement is only a reminder that the world is not yet out of the woods.
In the GCC, efforts are ongoing to return to pre-pandemic economic conditions, despite the ravaging effects of the current COVID-19 variant’s best efforts.
Kuwait needs urgent reforms to put its finances on a more sustainable footing, as monetary tools are not sufficient to address structural challenges, the governor of the central bank said last July.
“There is an urgent need for economic reforms, and all parties, especially the executive and legislative authority, must work to address all imbalances,” Mohammad al-Hashel told a conference.
Last year, the central bank introduced a wide range of stimulus measures to soften the negative impact on the banking sector and the wider economy caused by COVID-19 and record low oil prices.
These included the reduction of a key discount rate twice to a historic low, relaxing banks’ liquidity requirements, bolstering banks’ lending capacity by enhancing maximum credit limits and reducing risk weights.
The governor said Kuwaiti banks’ liquidity was healthy and profitability remained decent, but cautioned against withdrawing stimulus measures too abruptly as this could lead to borrower’s defaults.
Non-performing loans increased by 43% in 2020, originating mostly from the real estate sector, though the non-performing loan ratio remained healthy at 2%, the central bank said in a July 2020 report.
“While oil market conditions have improved, and despite the conservative $30/pbl price assumed in the fiscal year 20/21 budget, fiscal and macroeconomic reforms are still essential for Kuwait’s outlook”, it said.
Kuwait faces liquidity risks largely because parliament has not authorized government borrowing due to a standoff.
It has not issued international debt since 2017 to finance spending as a public debt law expired.
The government’s deficit is estimated at 33% of GDP in the fiscal year that ended in March 2021.
HSBC Bank estimates Bahrain’s economy will grow by around 3% this year and next.
A report on Central and Eastern Europe Middle East and Africa economics by HSBC for the ongoing third quarter (Q3-2021) has projected slightly lower GDP growth for the kingdom than the forecast by the Finance and National Economy Ministry, a performance that will leave real output below 2019 levels at the end of 2022.
The report, which is based on data till April, finds high-frequency data pointing to gains in consumption in Bahrain.
Points of sale (PoS) transactions were up more than 60% year-on-year in April.
A breakdown of the PoS data also shows that spending on non-resident cards, which typically account for a quarter of total outlays, was down more than 50% on its pre-pandemic levels, marking the impact of ongoing travel restrictions, particularly those on the causeway to Saudi. These restrictions have now been removed.
In terms of private sector credit growth in the kingdom, GCC funding has continued to give infrastructure spending some support, but MEED data shows the value of projects planned and underway down 13% year-on-year in June.
Bahrain’s GDP was estimated to have contracted by close to 6% in 2020.
Bahrain’s non-oil GDP at the end of 2020 was down 5% on its pre-pandemic levels.
Higher oil prices are offering significant support, and Q1 current account data shows the deficit halved quarter-on-quarter (QoQ) as oil earnings rose.
“We expect this consolidation to continue and see a deficit of around 3.5% of GDP over our forecast period, compared with 9.4% in 2020,” the report said.
UAE more robust growth ahead
Dubai’s GDP recorded robust growth of 2.2% in the year before the pandemic. Given the emirate’s dependence on tourism, retail, and services, and the interconnectedness of those areas of the economy, the pandemic severely curtailed Dubai’s economic activity.
According to government estimates, GDP contracted by 6.2% over the course of 2020. However, the successful vaccination campaign in the UAE and an uptick in global demand bode well for recovery.
Dubai’s government is projecting growth of 4% in 2021, while the IMF is forecasting economic expansion of 3.1% and 2.6% in 2021 and 2022, respectively, for the UAE as a whole.
The country is one of several GCC members to have introduced a 5% VAT in recent years. VAT receipts will support government revenue during the recovery phase and help fund the long-term provision of public services, as well as various economic advancement programs.
Diversification and technological innovation are at the core of Dubai’s development plans. The Dubai Industrial Strategy 2030 illustrates the government’s intention to capitalize on the emirate’s position as an international transport and logistics hub to drive industrial growth, with the high-tech and lucrative maritime and aerospace manufacturing industries key areas of focus.
Already an established financial center, Dubai is intent on leveraging its digital economy to become a global financial technology (fintech) leader. The Dubai International Financial Centre (DIFC) is a special economic zone that now houses over 2500 active companies, including 17 of the world’s 20 largest banks.
Fintech companies have a significant presence in the DIFC, with 87 new arrivals in the first six months of 2020, marking a 74% year-on-year increase.