Oil Still Accounts For 90% Of Saudi’s Total Revenues – Report

Saudi Arabia and Kuwait are the most dependent on oil revenues among GCC countries, according to a new report published by investment firm Alkhabeer Capital.

Oil revenues in Qatar and UAE account for close to 60 per cent of their total revenues, while in Saudi Arabia and Kuwait, the figure is close to 90 per cent and 93 per cent respectively.

This is in contrast to other resource-rich economies such as Norway, where revenues from oil account for just about 30 per cent of government revenues, the report said.

“The low contribution of the non-hydrocarbon sector primarily reflects the policy decision of maintaining a low or zero-tax environment to assist private sector activity,” it said.

“Although there has been speculation of introduction of GCC-wide value added tax, we do not expect such a decision in the foreseeable future.”

However, the report did add that the contribution of the non-oil sector to the overall GDP has increased significantly over the past two decades across the region.

The UAE, specifically Dubai, has been “exemplary” in diversifying revenue streams and boosting non-oil growth, which is projected by the IMF to expand by over four per cent annually over the next few years, said Alkhabeer.

While Abu Dhabi has the highest hydrocarbon reserves and generates more than half of the GDP in the UAE, the government hopes to cut the capital’s reliance on oil to 36 per cent of GDP by 2030.

As part of this strategy, Abu Dhabi has increased investments to develop sectors such as petrochemicals, financial services, aviation, renewable energy, and cultural tourism.

The report also found that Qatar has outpaced other GCC countries in terms of non-hydrocarbon sector revenue growth, posting an 18 per cent CAGR over the last five years.

A major part of this revenue comes from investment income, which consists of transfer of profits from public enterprises (including Qatar Petroleum’s subsidiaries), and accounted for around 16.9 per cent of the GDP and almost 44 per cent of total revenues in FY 2013-14, said the report.

The government’s long-term objective is to finance its entire budgetary operations through non-hydrocarbon revenue by 2020 and it has allocated significant capital towards development of infrastructure, health and education.

Overall, the report found that while the fiscal position of the GCC remains stable, more key steps are needed to lower dependence on oil revenues and mitigate long-term risks that may arise as a result.

“With the IMF projecting dramatic change in the fiscal environment by the end of the decade, a close watch must be kept on the fiscal policy stance of the region’s governments, which must be cognisant of the prospect of lower hydrocarbon revenues,” it said.

“Another pressing issue that must not be ignored is the subsidy bills for Gulf governments, with energy subsidy costs in some of the GCC countries as high as 28 per cent of government revenues,” the report added.