UAE, GCC to post budget surplus in 2022-23 on high oil, recovery in services sector

Mena region to post $400 billion current account surplus in 2022, up from $120 billion in 2021

Waheed Abbas

Published: Sun 12 Jun 2022, 3:38 PM

Last updated: Sun 12 Jun 2022, 10:03 PM

The UAE and its neighbouring Gulf countries will see their budgets returning to surplus this year and the next as crude oil prices stay above $100 per barrel and also helped by the recovery in the services sector.

Economists said the immediate return for GCC producers from the strong oil price should be robust economic growth and the return of large current account surpluses.

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Quoting the Institute of International Finance, the First Abu Dhabi Bank (FAB) said the aggregated current account surplus will surge over 233 per cent from $120 billion in 2021 to around $400 billion in 2022 for the entire Middle East and North Africa (Mena) region, with the GCC accounting for 90 per cent of the total.

Simon Ballard, chief economist at FAB, said across the GCC oil-producing community, the economic horizon remains reasonably bright, enhanced by the recent shift higher in oil prices and the concurrent recovery in the services sector.

"Petrochemical revenues remain the arteries of sovereign balance sheet liquidity and health of course, allowing the financing of ongoing economic diversification strategies. But, beyond these short-term drivers of optimism we are also cognisant that the region's underlying credit fundamentals are today being buoyed by regulatory, fiscal and public finance reform," he said.

Ballard added that the GCC region with its solid sovereign credit fundamentals, buoyed by the recent strength in the oil price, continues to offer investors a relative haven.

"Notwithstanding geopolitical turmoil across Eastern Europe and Ukraine and macroeconomic uncertainties elsewhere, we believe that the UAE and its immediate neighbours continue to benefit from a relatively favourable economic outlook," said Ballard.

For the UAE, FAB maintains a robust macro outlook for the UAE economy in 2022 and 2023.

"We believe that the UAE's economic prospects should remain positive for the medium-term, with the macro outlook buoyed by robust oil prices above $100 a barrel as well as by the recovery in the service sector that has been seen recently. Moreover, the economic outlook should also be underpinned by ongoing public finance reforms, which in turn will reinforce fiscal metrics," he added.

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For 2022, the UAE's largest bank expects real GDP growth to reach 5.7 per cent, up from 3.2 per cent in 2021. It expects 4.3 per cent real GDP growth for 2023

From deficits of 7.3 per cent and 0.1 per cent in 2020 and 2021, respectively, FAB expects the UAE government balance sheet to return to surplus this year. "In line with our view, IIF's latest data forecasts a UAE government overall balance surplus of 8.3 per cent this year and 4.9 per cent surplus in 2023," said Ballard.

For Saudi Arabia, the Kingdom will post a surplus of 6.7 per cent this year and 4.6 per cent year in 2023 after a deep deficit of 12.1 per cent in 2020 and 2.9 per cent in 2021.

- waheedabbas@khaleejtimes.com