Meaningful Change or False Dawn: Policymaking in an Age of Austerity
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A new generation is taking office in the Gulf as a cadre of ambitious, young ruling family members and technocrats have emerged in Qatar, Saudi Arabia, and the United Arab Emirates (UAE). Both the Emir and the newly-appointed Foreign Minister of Qatar are 35 years old, while the most talked-about figure in Saudi Arabia, Deputy Crown Prince Mohammad bin Salman, is 30 years old. Their rise to power is reminiscent of the early years of the Gulf states’ existence as independent sovereign countries, and the generation of ‘nation-builders’ such as Sheikh Zayed in the UAE. However, while that generation was tasked with overseeing the entrance of the GCC states into the oil era and cushioning the transformative impact of social and economic change, the task facing this generation is far harder and made more urgent by the recent collapse in world oil prices.
The speed with which budget surpluses have turned into deficits since 2014 has illustrated the scale of the economic volatility in GCC economies and their continuing vulnerability to oil price swings, notwithstanding the heavy emphasis on economic diversification since the early 2000s. The International Monetary Fund has projected that lower oil prices cost Arab oil exporters some $360 billion in lost revenues in 2015 and predicted that the six GCC states will face a cumulative fiscal deficit of as much as $1 trillion over the next five years. The situation is most acute in comparatively resource-poorer Bahrain, which was stripped of its investment grade credit rating by S&P in February 2016, and Oman, where GDP is estimated to have contracted by between fourteen and seventeen percent in 2015. However, even in wealthier Abu Dhabi, nominal GDP is set to be 24 percent lower in 2016 than the peak year of 2014, while Saudi Arabia ran a budget deficit of $98 billion and burned through more than $100 billion in reserves in 2015.
Published in Gulf Affairs.