Gulf Economic Update Naviga n the Wa er Ch l en e in the GCC: P ths to Sustain ble Sol on December 2024 AUTHORS Mu a m d K udadad Ch a Željko Boge ć Hoda Youssef Dominik Naeher Olen F omova Ch is n Borja-Vega Ashwaq Na q Maseeh Adn n Ghosheh Xin ue Wa g © 2024 International Bank for Reconstruction and Development/The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The find- ings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they repre- sent. 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Acronyms CCS Carbon Capture and Storage MENA Middle East and North Africa CIT Corporate Income Tax NCSI National Centre for Statistics and Information CPI Consumer Price Index NPLs Non-Performing Loans FDI Foreign Direct Investment OECD Organization for Economic Co-operation and Development FBP Fiscal Balance Program OMN Sultanate of Oman FED Federal Reserve Board OPEC Organization of the Petroleum Exporting Countries FGF Future Generations Fund PIF Public Investment Fund FLFPR Female Labor Force Participation Rate PMI Purchasing Managers’ Index GBI Gulf Bridge International QIA Qatar Investment Authority GCC Gulf Cooperation Council QNBN Qatar National Broadband Network GDP Gross Domestic Product QTR State of Qatar GRE Government-Related Entity SPPC Saudi Power Procurement Company ILO International Labor Organization SWFs Sovereign Wealth Funds IMF International Monetary Fund UAE United Arab Emirates KSA Kingdom of Saudi Arabia UNCTAD United Nations Conference on Trade and Development KUNA Kuwait News Agency VAT Value-Added Tax LNG Liquefied Natural Gas I GULF ECONOMIC UPDATE Preface The Gulf Economic Update (GEU) is the product of the Economic Policy unit for Middle East and North Africa at the World Bank Group. It provides an update on key economic develop- ments and policies in the Gulf Cooperation Council (GCC) countries over the past six months, places them in a longer-term and global context and assesses the implications of these devel- opments and other changes in policy on the outlook for the GCC. Its coverage ranges from the macroeconomy to financial markets to indicators of human welfare and development. It is intended for a wide audience, including policymakers, business leaders, financial market par- ticipants, and the community of analysts and professionals engaged in the GCC. The main authors of this edition are Muhammad Khudadad Chattha (TTL), Hoda Youssef, Ole- na Ftomova, Ashwaq Natiq Maseeh, Xinyue Wang, Željko Bogetić, Dominik Naeher, Christian Borja-Vega and Adnan Ghosheh. The Recent Developments and Outlook chapters were pre- pared by Muhammad Khudadad Chattha, Hoda Youssef, Olena Ftomova, Ashwaq Natiq Ma- seeh and Xinyue Wang. The Spotlight Section was prepared by Željko Bogetić and Dominik Naeher, based on their paper “Is Escaping Fiscal Procyclicality Trap Possible? New Evidence from MENA,” World Bank Policy Research Paper Series, 2024 (forthcoming). Box 3 was pre- pared under the guidance of Zeljko Bogetic by Luan Zhao, Joanne Matossian, and Weijian Li, based on the updated data from World Bank, 2024, “Dire Strait: The Far-Reaching Impact of the Red Sea Shipping Crisis”. The Special Focus was led by Christian Borja-Vega and Adnan Ghosheh with contributions from various colleagues: Fernando Miralles-Willhelm, George Joseph, Rita Cestti, Pavel Luengas, Vera Kehayova, Qiao Wang, Yi Jong Roo and Patrick Ka- banda. The design and typesetting of the report was done by Muhammad Kamal and Mikael Jonathan Bima Nainggolan. The team benefitted from administrative support from Ghadi Bint Abdulaziz Bin Faisal Al Saud. The Arabic translation of the executive summary was done by Mirna Tabet. The GEU was completed under the guidance of Safaa Tayeb El Kogali (Country Director) and Eric Le Borgne (Practice Manager). The Special Focus was developed under guidance from Mi- chael Haney (Practice Manager), Yogita Mumssen (Practice Manager) and Rafeef Abdelrazek (Program Leader). The findings, interpretations, and conclusions expressed in this report are those of the World Bank staff and do not necessarily reflect the views of the Executive Board of The World Bank or the governments they represent. For questions and comments on the content of this publication, please contact Muhammad Khudadad Chattha (mchattha@worldbank.org). For media communication, please contact Ashraf Al-Saeed (aalsaeed@worldbank.org), and Saleh Alobaidi (salobaidi@worldbank.org). To be included on an email distribution list for this or other related publications, please con- tact Mariem Sghaier (msghaier@worldbank.org). For information about the World Bank and its activities in the GCC, including e-copies of this publication, please visit (www.worldbank. org/en/country/gcc). II GULF ECONOMIC UPDATE Table of contents Foreword�������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������V Executive Summary�����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������01 Recent Developments�����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������10 Spotlight Section������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������21 Outlook and Risks�������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 25 Special Focus������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������40 References������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������78 Annex 1: GCC Summary Statistics Table�������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 85 Annex 2: Country Summary Tables������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 85 Table of Figures, Tables & Boxes Figure 1: The GCC region is experiencing a deceleration in growth during 2024...�������������������������������������������������������������������������������������������������������������������12 Figure 2: … mainly due to a contraction in the oil sector, while non-oil sector remains resilient.��������������������������������������������������������������������������������������12 Figure 3: Growth recovered for several economies over H1…������������������������������������������������������������������������������������������������������������������������������������������������������������������12 Figure 4: … however the PMI survey, an indication of economic trends in private sector manufacturing and service sectors, is on a slightly declining trend.���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������12 Figure 5: Oil sector contractions affected several countries in the region…����������������������������������������������������������������������������������������������������������������������������������13 Figure 6: …while non-oil sector growth across the region remains stable and resilient����������������������������������������������������������������������������������������������������������13 Figure 7: Inflation across GCC remains low and stable with some recent volatility in Oman and Qatar���������������������������������������������������������������������14 Figure 8: GCC Banks cut rates in 2024, following the U.S. Fed rate cut to maintain currency peg with US��������������������������������������������������������������14 Figure 9: The banking sector across the GCC remains generally resilient, but NPLs in the UAE are on the higher side���������������������������������14 Figure 10: Fiscal balances vary across countries, influenced by a combination of increased government spending and fluctuating oil revenues�������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������16 Figure 11: Debt levels broadly stayed stable and below MENA average in most GCC countries��������������������������������������������������������������������������������������16 Figure 12: Current account surplus narrowed in H1 2024 with declining oil receipts�����������������������������������������������������������������������������������������������������������������17 Figure 13: Meanwhile international reserves remain at robust levels, bolstering resilience against external shocks.�������������������������������������������17 Figure 14: Share of nationals and non-nationals of total private sector employment, percent��������������������������������������������������������������������������������������������19 Figure 15: Fiscal Policy Cyclicality in GCC Countries and the World, 2000-2022����������������������������������������������������������������������������������������������������������������������23 Figure 16: Cyclicality of Fiscal Policy Variables in GCC Countries, 2000-2011 vs. 2012-2022���������������������������������������������������������������������������������������������23 Figure 17: Oil prices are projected to decline in the absence of major economic shocks������������������������������������������������������������������������������������������������������26 Figure 18: GDP growth projected to rebound, tracking oil sector developments������������������������������������������������������������������������������������������������������������������������27 Figure 19: The increase in projected growth driven primarily by exports and consumption�������������������������������������������������������������������������������������������������27 Figure 20: Economic growth is expected to rebound in most GCC countries, helped by increase oil production and continued strong non-oil growth����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������29 Figure 21: GCC countries’ inflation projected to remain contained at relatively low levels�������������������������������������������������������������������������������������������������30 Figure 22: GCC banks’ credit growth is expected to be stimulated by lower interest rates.������������������������������������������������������������������������������������������������30 Figure 23: The GCC fiscal surplus is projected to turn into a deficit in 2024, and to remain on deficit in the medium term���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������32 Figure 24: There is significant divergence in individual countries’ positions�����������������������������������������������������������������������������������������������������������������������������������32 Figure 25: The overall debt-to-GDP ratio projected to increase, but there is significant regional variation���������������������������������������������������������������33 Figure 26: Large fiscal buffers through the regional SWFs expected to insulate economy from external shocks�������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������33 III GULF ECONOMIC UPDATE Figure 27: Current balance surplus is expected to narrow before expanding in the medium term…����������������������������������������������������������������������������� 34 Figure 28: ...tracking the developments in oil market.������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������ 34 Figure 29: A-D. The Red Sea crisis forced many vessels to divert from their original routes, straining the supply chains of GCC countries and causing a decline in maritime shipping across the region�������������������������������������������������������������� 36 Figure 30: China sources nearly 30 percent of its crude oil imports from five of the GCC countries in 2023���������������������������������������������������������� 38 Figure 31: The U.S. economy has shown resilience in 2024, with higher contributions to global growth�������������������������������������������������������������������� 38 Figure 32: Projected exposure to water stress by 2050������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 42 Figure 33: Temperature increases of GCC cities and global and northern hemisphere averages 1979-2019����������������������������������������������������������� 43 Figure 34: Water withdrawals by economic sector, MENA and GCC countries���������������������������������������������������������������������������������������������������������������������������� 46 Figure 35: Agricultural production (Kg/m3) for GCC and MENA region�������������������������������������������������������������������������������������������������������������������������������������������� 46 Figure 36: Adaptation measures linked to water, select MENA and GCC countries�������������������������������������������������������������������������������������������������������������������47 Figure 37: Water Footprint in GCC����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 48 Figure 38: Composition of Water Footprint GCC and Non-GCC MENA Countries�������������������������������������������������������������������������������������������������������������������� 49 Figure 39: Trends in Water Footprint per capita, GCC and Non-GCC MENA countries����������������������������������������������������������������������������������������������������������50 Figure 40: Efficiency in Water Use for Industrial Production, GCC and Non-GCC MENA Countries������������������������������������������������������������������������������� 51 Figure 41: Efficiency in Water Use for Agricultural Production, GCC and Non-GCC MENA Countries������������������������������������������������������������������������ 52 Figure 42: Decomposition of Changes in Water Use for Agricultural Production, GCC and Non-GCC MENA Countries���������������������������������53 Figure 43: Water productivity (US$/cubic meter for GCC and high-income countries, 2022��������������������������������������������������������������������������������������������� 54 Figure 44: Oman’s water security performance indicators���������������������������������������������������������������������������������������������������������������������������������������������������������������������������57 Figure 45: Qatar’s water security performance indicators���������������������������������������������������������������������������������������������������������������������������������������������������������������������������59 Figure 46: Saudi Arabia’s water security performance indicators����������������������������������������������������������������������������������������������������������������������������������������������������������� 61 Figure 47: UAE water security performance indicators��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 63 Figure 48: Benchmarks of Environmental Performance Index (EPI) of Water Quality��������������������������������������������������������������������������������������������������������������� 64 Figure 49: Exposure to drought risk between all regions and GCC countries�������������������������������������������������������������������������������������������������������������������������������65 Figure 50: Ratio of productivity and water use efficiency ($ / cubic meter)������������������������������������������������������������������������������������������������������������������������������������65 Figure 51: Selected indicators of water resources of GCC countries compared to Asian countries�������������������������������������������������������������������������������66 Figure 52: GCC countries and worldwide estimates of water and sanitation services in health care facilities���������������������������������������������������������67 Figure 53: Rates of public sector execution���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������69 Figure 54: Projected total water withdrawals by sector and by source across water resources management scenarios����������������������������������72 Figure 55: Implications of reduced demand on agricultural revenue losses and needed investments in electricity������������������������������������������ 75 Box 1: Labor market reforms to boost employment of nationals in the private sector in GCC����������������������������������������������������������������������������������� 19 Box 2: Tax Revenue Mobilization Efforts in the GCC – Progress to Date����������������������������������������������������������������������������������������������������������������������������������� 31 Box 3: The Impact of the Red Sea Shipping Crisis on the Gulf States����������������������������������������������������������������������������������������������������������������������������������������35 Box 4: Assessing Water Security Impacts on Poverty and Inequality������������������������������������������������������������������������������������������������������������������������������������������� 41 Box 5: Energy Consumption and Innovation in Saudi Arabia's Water Sector������������������������������������������������������������������������������������������������������������������������� 70 Table 1: Irrigation upgrade and expansion needs for sustainable water use and storage in agriculture���������������������������������������������������������������� 43 Table 2: Water Resources in GCC countries��������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 44 Table 3: Comparison of Water Expenditures with other development sectors by region��������������������������������������������������������������������������������������������������68 Table 4: Potential application of Nature-based Solutions towards water security and climate adaptation in the water sector�������������� 73 IV GULF ECONOMIC UPDATE Foreword The Gulf Cooperation Council (GCC) countries— Bahrain, Kuwait, Oman, Qatar, Saudi Ara- bia, the UAE—have made significant strides in diversifying their economies, investing in, and building up their digital and green economies. At the same time, they have shown remarkable resilience in the face of global disruptions, including fluctuations in energy markets and the ongoing effects of geopolitical tensions. The Gulf region has long been central to global energy markets, with its economies historically reliant on oil and gas. While hydrocarbons remain vital, the region is proactively embracing diversification to foster innovation and build sustainable industries. These forward-thinking efforts are reshaping the socioeconomic landscape, ensuring long-term resilience, and posi- tioning the Gulf states for a future beyond fossil fuels. This is an evolving but unfinished agenda. As the region navigates the transition away from oil dependency, challenges remain, requiring continued attention, collaboration, and adaptation to changing global trends. At the same time, geopolitical shifts and global economic uncer- tainties demand careful policy formulation and timely decision-making to ensure long-term stability. In the December 2024 edition of the Gulf Economic Update, we reflect on the region’s recent economic performance and discuss the region’s economic outlook in the medium term. The report highlights key trends, challenges, and opportunities that are shaping its future. This edition of the Gulf Economic Update takes a special focus on one of the region’s most pressing challenges—water scarcity. As a largely arid region, the Gulf faces significant chal- lenges in ensuring a sustainable water supply to meet the needs of its rapidly growing popula- tions and industrial sectors. The report highlights the key challenges within the water sector, documenting the region’s ongoing efforts to address water scarcity through innovative solu- tions such as desalination and demand management strategies. It also explores the way for- ward, examining how policy reforms can contribute to securing water resources for the future and promote long-term environmental sustainability. I am proud of the role the World Bank partnership in the GCC plays in supporting the economic development of this region. Through our research and analytical work, policy dialogue, and capacity building with key stakeholders, we aim to contribute valuable insights that help shape informed decisions and foster sustainable development. I invite you to explore the insights in this report and join us in our continued commitment to understanding and driving positive change in the Gulf economies. Safaa El Tayeb El-Kogali Country Director Gulf Cooperation Council Countries V GULF ECONOMIC UPDATE VI GULF ECONOMIC UPDATE Chapter E.S. Page 01 – 05 Executive Summary E conomic growth in the GCC expected to grow by 1.6 percent in 2024, before countries remains heavily accelerating to an average of 4.2 percent over influenced by global ener- 2025-2026. This reflects the impact of weak gy markets, but the impact oil GDP in 2024 - estimated to contract by 2 is mitigated by robust non- percent – before the expected rolling back of oil growth reflecting the ad- crude production cuts starting December 2024 vancement of diversification onward. Non-oil GDP is estimated to grow by efforts. In 2024, GCC economies continue to 3.7 percent in 2024 and is expected to remain experience a contraction in the oil sector due robust in the following two years - albeit at slow- to OPEC+ production cut decisions to stabi- er rates as lower oil prices may prompt fiscal lize global energy prices. Additionally, Saudi consolidation measures in most of the Gulf. Arabia, UAE, Kuwait, and Oman had agreed to extend their additional voluntary output Driven by ambitious reform agendas, growth cuts until the end of November. Meanwhile, in the non-oil sectors reflect the advance- robust growth in non-oil sectors is mitigating ment of economic diversification efforts in the impact, reflecting the region’s diversifica- many of the GCC countries, albeit at different tion efforts. In the first half of 2024 (H1-2024), paces. The UAE continues to lead in diversi- the region’s overall GDP growth shows a large fication, with accelerated growth in financial contraction of 7.5 percent in oil-GDP while non- services, logistics, and transport, underscoring oil GDP remains resilient with a 3.8 percent the success of service-oriented diversification growth. Going forward, the GCC economy is strategy. In Saudi Arabia, the implementation 01 EXECUTIVE SUMMARY GULF ECONOMIC UPDATE of Vision 2030 led to substantial investments in due to declining gas receipts. On the brighter tourism and renewable energy and a strong per- side, the UAE is maintaining stronger position, formance of the retail and hospitality sectors. supported by a large reduction in government Kuwait’s non-oil economy is driven by gains in spending and the introduction of corporate in- Al-Zour refining, in addition to other services come taxation, which diversified revenue sourc- including real estate. In Oman, agriculture, es. In the medium term, GCC Fiscal balances refined petroleum products, manufacturing, are expected remain in deficit in 2025-2026 (of and transport are the main drivers of non-oil around 0.2 percent of GDP) as the extension of growth, while Bahrain’s non-oil economy is OPEC+ oil production cuts through the end of largely supported by growth in financial and 2025, coupled with relatively low oil prices and insurance services, manufacturing and con- higher expenditures across the region, will have struction. Qatar’s non-hydrocarbon sector adverse effects on the fiscal accounts. grew at a more moderate pace than the rest of the region, bolstered by a notable rise in sports Debt dynamics on the GCC countries, showed events-related tourism, and advancements in diverging trends across countries. Oman the IT sector, aiming at positioning the country made significant progress, reducing its public as a leading regional and global digital hub. debt by close to 3 percentage points of GDP within a year time frame, demonstrating its Headline inflation in the GCC remains low commitment to fiscal discipline. Bahrain’s debt and stable, but significant inflationary pres- situation, however, remains challenging with sures are evident in the housing sector. In- its public debt reaching around 123 percent of flation in the region remains very moderate GDP in 2023 and expected to stay above 100 compared to global peers, estimated to average percent through 2024-2026. 2.1 percent in 2024. This is attributed to several factors including tighter monetary policies, GCC countries with strong diversified econ- generous subsidies, caps on fuel prices, de- omies are avoiding risks to their external po- clining global food prices, and the stabilizing sitions from declining commodity revenues effect of the currency peg to the U.S. dollar. In and rising imports, supported by strong Saudi Arabia and the UAE, however, upward foreign reserves. The UAE, Oman, Bahrain, pressures on housing prices pushed inflation and Qatar maintained or strengthened their rates up. Going forward, further easing in key external positions. In the UAE, the current ac- policy rates in the United States is likely to push counts surplus continues to be supported by GCC countries to slash their interest rates in rising non-oil exports, in turn facilitated by free response. In 2025, a combination of interest trade agreements, while Oman and Bahrain’s rate cuts, and stronger economic growth may current account surplus is still underpinned exert upward pressure on prices from stimu- by growth in hydrocarbon exports. Qatar’s lated demand, but the same factors mentioned external position strengthened further, with above are expected to avert any significant re- the larger current account surplus owing to bound in inflation. robust services export growth, driven by the tourism sector. Among the six GCC countries, Fiscal conditions across the GCC reflect- Saudi Arabia and Kuwait are experiencing ed a combination of increased government large pressures on their current accounts, with spending and declined oil revenues, with a narrowing surplus in 2024. In the medium a varying impact across countries. Saudi term, the current account surplus of GCC is Arabia and Kuwait are facing rising pressures expected to further narrow to 7.1 percent of and larger fiscal deficits. Bahrain also faces GDP in 2024, mainly reflecting lower energy considerable fiscal challenges, but these have exports. In 2025-2026, strong performance of pushed the country to pursue fiscal consolida- service exports across most GCC will provide tion efforts notably through enhanced non-oil support to the external sector, widening the revenue generation. Qatar’s fiscal surplus is external balance surplus to 8 percent of GDP. shrinking due to a drop in oil and gas revenues. In this regard, Oman’s continued focus on fiscal Foreign Direct Investment (FDI) trends in consolidation has helped stabilize its fiscal po- the GCC region present a mixed picture. The sition and maintain a fiscal surplus, although a UAE continues to stand out as a key destination, narrowing one compared to the previous year attracting substantial investments in sectors 02 EXECUTIVE SUMMARY GULF ECONOMIC UPDATE such as manufacturing, tourism, and finance In Saudi Arabia, there was a decline in the and helped by key implemented reforms to unemployment rate, signaling a robust labor streamline regulatory processes, ease foreign market. Kuwait sees a rise in private sector ownership restrictions, and introduce attrac- employment of non-Kuwaitis, while nationals tive incentives for global investors. In contrast, remain largely employed in the public sector. Saudi Arabia’s FDI inflows remain largely stag- In Qatar, labor market stability persists with a nant, highlighting challenges in sustaining in- low unemployment rate, though a slight rise in vestor confidence despite the ambitious Vision unemployment is expected in 2024, primarily 2030 reforms aimed at streamlining regulations among women, exacerbating existing gender and fostering economic transformation. disparities. Youth unemployment continues to outpace the broader labor market, suggesting International reserves remained at adequate that labor market reforms and inclusion strat- levels, providing the region with substan- egies will need to be intensified to sustain and tial buffers to manage economic shocks. In broaden economic gains. 2023, international reserves remained strong across most nations, with the UAE achieving The developments in GCC economies high- substantial growth from strong FDI inflows. light the importance of countercyclical fiscal Meanwhile, Saudi Arabia and Kuwait faced policy in stabilizing the economy. By counter- declines in reserves due to falling oil exports, ing the business cycle, such policies to reduce albeit from comfortable levels. This accumula- the economy’s vulnerability to shocks, while tion of foreign reserves strengthens external procyclical fiscal policy can exacerbate econom- stability and serves as a crucial buffer against ic fluctuations. Over the past two decades, GCC global financial volatility. countries generally adhered to countercyclical fiscal policies, with government expenditures Labor markets in the GCC region experi- being countercyclical in Oman, Saudi Arabia, enced moderate employment growth, though Kuwait, UAE, and Bahrain, but slightly procy- structural challenges persist around gender clical in Qatar. Conversely, government reve- imbalances and youth unemployment. While nues were procyclical in all GCC countries, in- many economies have successfully reduced fluenced by volatile oil and gas revenues. Trends overall unemployment rates, the pace of job also vary over time: while Qatar, Kuwait, and creation varies, and participation rates are Oman moved towards stronger countercycli- not uniformly increasing, signaling that more cality, the UAE and Saudi Arabia moved away targeted policy efforts are required. Women’s from it. Bahrain showed slight improvement participation in the workforce remains a cen- in revenue cyclicality but less countercyclical tral challenge, despite the previously achieved expenditure. Internationally, GCC countries progress. On the employment side, the UAE, perform relatively well in achieving counter- Oman and Bahrain continue to see strong cyclicality compared to other MENA countries employment growth, bolstered by the coun- but lag behind other high-income countries. try’s adoption of gender balance strategies. 03 EXECUTIVE SUMMARY GULF ECONOMIC UPDATE Special Focus: Navigating the Water Challenge in GCC countries The GCC countries face a complex and ur- sures and water security, governments must gent set of challenges in managing their integrate water resource management into water resources. These challenges are deep- macroeconomic planning. Policies fostering ly intertwined with their arid climate, rapid private sector engagement in the water sector population growth, economic structures, and can alleviate fiscal burdens while accelerating dependence on water-intensive sectors. Below the development of necessary infrastructure. is a summary of the special focus chapter, pre- Strengthening institutional frameworks and senting a coherent narrative about the GCC’s governance is pivotal for effective water re- water sector and its critical role in shaping the source management and investment. region’s economic and environmental future. Water is also central to achieving sustainable Economic Significance of Water Security in GCC development goals (SDGs) and is intrinsical- countries ly linked to key macroeconomic variables like GDP growth, employment, and industrial Water-dependent sectors contribute sig- productivity. Water must satisfy the various nificantly to GCC economies. For instance, needs of people, economic sectors and the en- 51–58 percent of gross value added and over 90 vironment. The risks of water insecurity can percent of export earnings in some GCC states hamper socioeconomic progress and hinder are tied to water-intensive industries. Howev- industrial activities or agricultural outputs, fur- er, the unsustainable use of water resources ther stressing the aggregate economy. Strategic creates vulnerabilities that could undermine investment in water efficiency and water saving economic diversification efforts, particularly as technologies serves as a cornerstone for eco- the GCC nations seek to reduce their reliance nomic diversification and resilience-building. on oil revenues. Water Scarcity and Dependency The investments in the water sector to meet the challenges of the next 50 years can help The GCC region is one of the most wa- diversity the GCC economies. Economic di- ter-scarce in the world, with renewable versification is identified as essential for long- freshwater availability often below 100 cubic term growth, particularly in regions heavily meters per capita annually—far below the dependent on sectors such as agriculture or global scarcity threshold. This severe scarcity resource extraction. Water plays a vital role necessitates heavy reliance on non-renewable here by supporting diverse industries. Invest- groundwater and energy-intensive desalina- ments in water-related projects not only secure tion. Agriculture, a key driver of water use, access to a critical resource but also open av- consumes 70–80 percent of the water supply enues for economic transformation. Securing but contributes minimally to GDP, highlight- financing under tight capitals, limits invest- ing inefficiencies in water allocation across the ments in competing priorities. Innovative pub- productive sectors of the economy. lic-private partnerships, concessional loans, and development aid are suggested pathways Water to Reduce Climate and Environmental to bridge the gap. Pressures Water security underpins productivity Climate change exacerbates water stress across sectors, particularly in agriculture, through more frequent droughts and rising which contributes to employment gener- temperatures, increasing evapotranspira- ation. Addressing water scarcity and quality tion and further straining fragile ecosys- issues is critical for ensuring economic resil- tems. Groundwater depletion and salinization, ience and mitigating risks to food systems, driven by over-abstraction for agriculture and public health, and broader economic stability. urban uses, threaten long-term water security. To tackle the dual challenges of economic pres- Conservation of biodiversity and wetlands re- 04 EXECUTIVE SUMMARY GULF ECONOMIC UPDATE mains insufficient, with poor performance on • Promoting Water Efficiency: Reforming indicators of protected aquatic ecosystems. pricing policies and improving water use in agriculture and industry. Fiscal and Governance Constraints • Expanding Non-Conventional Sources: Heavy subsidies on water tariffs could gener- Scaling up wastewater reuse and adopting ate distortions in water values and discour- renewable energy-powered desalination age efficient water use. Fiscal pressures tied technologies. to volatile oil revenues complicate the ability to sustain high levels of public investment in water • Enhancing Governance: Strengthening infrastructure. Governance inefficiencies, such regulatory frameworks and fostering re- as fragmented policies and weak regulatory gional cooperation on shared water chal- enforcement, limit the effectiveness of water lenges. resource management. • Investing in Resilience: Building infra- GCC economies face fiscal constraints and structure to mitigate climate risks and pressures as they try to balance urgent protect ecosystems, while integrating public investments with limited resources. nature-based solutions. Water, as a fundamental necessity, requires significant investment to support both social • Fostering Public-Private Partnerships: needs and economic growth. Debt dynamics Leveraging private investment and exper- play a central role, as GCC countries often fund tise to address funding gaps and improve water infrastructure while maintaining fiscal service delivery. discipline. Rising debt levels requires careful prioritization and innovative financing mecha- A pathway towards water security nisms. The GEU with special focus on “Water” underscores the urgent need for coordinated Managing water as a strategic resource in action across public and private sectors to ad- GCC countries requires policy shifts, partic- dress water challenges, reduce fiscal pressures, ularly in agriculture, to address severe water and unlock economic potential. stress while balancing economic and em- ployment impacts. Investments in water-sav- Infrastructure and Technological Opportunities ing technologies and advanced irrigation can optimize water use, while structural reforms, While GCC countries lead globally in desali- such as focusing on less water-intensive crops nation, they face high costs, energy demands, and relying on global food imports, can lower and environmental trade-offs. Treated waste- agricultural water footprints without compro- water remains underutilized, with only about mising food security. Redirecting investments 35 percent reused, leaving significant room for to water-efficient sectors like renewable energy, improvement. Investment inefficiencies and op- logistics, and technology can create high-val- erational challenges, such as high non-revenue ue jobs, offsetting employment losses from water losses, further constrain the potential agricultural reforms. However, non-econom- of the sector. ic factors such as food security and national productivity may drive governments to main- Finally, there are five policy pathways of the tain export-oriented agriculture, despite its water sector promoted in the GEU based on unsustainable water use and potential geopo- evidence and benchmarks of GCC countries: litical tensions. 05 EXECUTIVE SUMMARY GULF ECONOMIC UPDATE ‫ملخص تنفيذي‬ ‫تنفيذ رؤية ‪ ٢٠٣٠‬إىل استثامرات كبرية يف قطاعات السياحة‬ ‫ال يزال النمو االقتصادي يف دول مجلس التعاون الخليجي شديد‬ ‫َعي تجارة‬ ‫والطاقة املتجددة وإىل تسجيل أداء قوي يف قطا َ‬ ‫التأثر بأسواق الطاقة العاملية‪ ،‬غري أن حّدّ ة التأثر قد تراجعت‬ ‫التجزئة والضيافة‪ .‬ويعتمد االقتصاد غري النفطي يف الكويت‬ ‫بفضل النمو القوي للقطاعات غري النفطية‪ ،‬ماميعكس استمرار‬ ‫عىل املكاسب املحققة بفضل عمليات التكرير يف مصفاة الزور‪،‬‬ ‫جهود التنويع االقتصادي‪ .‬يف عام ‪ ،٢٠٢٤‬ال تزال اقتصادات‬ ‫ُعامن‪،‬‬‫باإلضافة إىل خدمات أخرى تشمل قطاع العقارات‪ .‬ويف ُ‬ ‫دول مجلس التعاون الخليجي تشهد حالة انكامش يف قطاع‬ ‫تشكل قطاعات الزراعة واملنتجات النفطية املكررة والتصنيع‬ ‫النفط بسبب قرارات منظمة أوبك‪ +‬بخفض اإلنتاج لتثبيت‬ ‫والنقل املحركات الرئيسية للنمو غري النفطي‪ ،‬يف حني يدعم‬ ‫أسعار الطاقة عىل الصعيد العاملي‪ .‬باإلضافة إىل ذلك‪ ،‬كانت‬ ‫النمو يف الخدمات املالية والتأمينية والتصنيع والبناء االقتصاد‬ ‫كل من اململكة العربية السعودية واإلمارات العربية املتحدة‬ ‫ٍّد كبري‪ .‬وقد منا القطاع غري‬ ‫غري النفطي يف البحرين إىل ح ٍ‬ ‫ُعامن قد وافقت عىل متديد فرتة إضافية‬ ‫والكويت وسلطنة ُ‬ ‫الهيدروكربوين يف قطر بوترية أكرث اعتداًالً من بقية دول املنطقة‪،‬‬ ‫للتخفيض الطوعي لإلنتاج حتى نهاية ترشين الثاين‪/‬نوفمرب‪.‬‬ ‫مدعوم�ا بارتفاع ملحوظ يف السياحة املرتبطة بالفعاليات‬ ‫يف الوقت نفسه‪ ،‬خفف النمو القوي للقطاعات غري النفطية‬ ‫الرياضية والتقدم يف قطاع تكنولوجيا املعلومات‪ ،‬بهدف جعل‬ ‫ّدة التأثري‪ ،‬مام يعكس جهود التنويع االقتصادي الجارية‬ ‫من ح ّ‬ ‫البالد مركزًا ً رقميًاً رائدًا ً عىل الصعيدين اإلقليمي والعاملي‪.‬‬ ‫يف املنطقة‪ .‬ففي النصف األول من عام ‪ُ ،٢٠٢٤‬يُظهر منو الناتج‬ ‫املحيل اإلجاميل الكيل للمنطقة انكامشًاً كبريًا ً بنسبة ‪ ٧.٥‬يف‬ ‫وتظل معدالت التضخم يف دول مجلس التعاون الخليجي‬ ‫ظّل الناتج املحيل‬‫املائة يف الناتج املحيل اإلجاميل النفطي‪ ،‬بينام ّ‬ ‫ًة‪ ،‬مع وجود ضغوطا تضخمية كبرية يف قطاع‬ ‫ًة ومستقر ً‬ ‫منخفض ً‬ ‫اإلجاميل غري النفطي صامدًا ً بنسبة منو تبلغ ‪ ٣.٨‬يف املائة‪ .‬ومن‬ ‫اإلسكان‪ .‬ال يزال التضخم يف املنطقة معتدًالً للغاية مقارن ً‬ ‫ًة‬ ‫املتوقع أن ينمو اقتصاد دول مجلس التعاون الخليجي بنسبة‬ ‫َّدر متوسط هذا التضخم بنحو‬ ‫مبناطق أخرى من العامل‪ ،‬حيث ُيُق َ‬ ‫‪ ١.٦‬يف املائة يف عام ‪ ،٢٠٢٤‬قبل أن يتسارع ويسجل متوسط‬ ‫‪ ٢.١‬يف املائة يف عام ‪ .٢٠٢٤‬وُيُعزى هذا اإلعتدال إىل عوامل‬ ‫منو بنسبة ‪ ٤.٢‬يف املائة خالل الفرتة املمتدة بني ‪.٢٠٢٦ ٢٠٢٥‬‬ ‫عديدة مبا يف ذلك تشديد السياسات النقدية أكرث ‪ ،‬ومستويات‬ ‫ويعكس هذا املسار ضعف الناتج املحيل اإلجاميل النفطي يف‬ ‫الدعم السخية‪ ،‬والحدود القصوى املفروضة عىل أسعار الوقود‪،‬‬ ‫عام ‪ - ٢٠٢٤‬والذي من املتوقع أن ينكمش بنسبة ‪ ٢‬يف املائة‬ ‫وانخفاض أسعار املواد الغذائية العاملية‪ ،‬واالستقرار الناجم عن‬ ‫‪ -‬قبل أن يعود إنتاج النفط الخام اعتبارًا ً من كانون األول‪/‬‬ ‫ربط العملة بالدوالر األمرييك‪ .‬أما يف اململكة العربية السعودية‬ ‫ديسمرب ‪ .٢٠٢٤‬ومن املتوقع أن ينمو الناتج املحيل اإلجاميل غري‬ ‫واإلمارات العربية املتحدة‪ ،‬فقد دفعت الضغوط التصاعدية‬ ‫النفطي بنسبة ‪ ٣.٧‬يف املائة يف عام ‪ ٢٠٢٤‬ويظل قويًاً يف العامني‬ ‫عىل أسعار اإلسكان إىل ارتفاع معدالت التضخم‪ .‬من املرجح أن‬ ‫التاليني ‪ -‬وإن كان مبعدالت أبطأ‪ ،‬حيث قد تدفع أسعار النفط‬ ‫يدفع التخفيض اإلضايف يف أسعار الفائدة الرئيسية يف الواليات‬ ‫املنخفضة إىل اتخاذ تدابري لضبط األوضاع املالية يف معظم دول‬ ‫املتحدة األمريكية دول مجلس التعاون الخليجي إىل خفض‬ ‫الخليج‪.‬‬ ‫ّد‪ .‬ويف عام ‪ ،٢٠٢٥‬قد تؤدي‬ ‫أسعار الفائدة لديها بشكل حا ّ‬ ‫ًة بنمو اقتصادي أقوى‪ ،‬إىل‬ ‫تخفيضات أسعار الفائدة‪ ،‬مقرون ً‬ ‫يعكس النمو املتسارع يف القطاعات غري النفطية تقدم جهود‬ ‫ضغوط تصاعدية عىل األسعار بسبب زيادة الطلب‪ ،‬ولكن من‬ ‫التنويع االقتصادي يف العديد من دول مجلس التعاون الخليجي‬ ‫املتوقع أن تساهم العوامل نفسها املذكورة أعاله يف تفادي أي‬ ‫ًة بأجندات اإلصالح الطموحة‪ ،‬وإن كان بوترية مختلفة‪.‬‬ ‫مدفوع ً‬ ‫ارتفاع ملحوظ يف معدالت التضخم‪.‬‬ ‫وال تزال دولة اإلمارات العربية املتحدة تتصدر جهود التنويع‪،‬‬ ‫مع تسارع النمو لديها يف مجال الخدمات املالية والخدمات‬ ‫يعكس الوضع املايل يف جميع دول مجلس التعاون الخليجي‬ ‫اللوجستية والنقل‪ ،‬مام يؤكد نجاح اسرتاتيجية التنويع املوجهة‬ ‫مزيجًاً من زيادة اإلنفاق الحكومي وانخفاض عائدات النفط‪،‬‬ ‫نحو قطاع الخدمات‪ .‬ويف اململكة العربية السعودية‪ ،‬أدى‬ ‫‪06‬‬ ‫مخلص تنفيذي‬ ‫الخليجي الدعم للقطاع الخارجي‪ ،‬مام يؤدي إىل توسيع فائض‬ ‫مع تفاوت تأثري ذلك بني البلدان‪ .‬تواجه كل من اململكة‬ ‫امليزان الخارجي إىل ‪ ٨‬يف املائة من الناتج املحيل اإلجاميل‪.‬‬ ‫العربية السعودية والكويت ضغوطًاً متزايدة وعجزًا ً ماليًاً أكرب‪.‬‬ ‫كام تواجه البحرين تحديات مالية كبرية‪ ،‬لكن هذه التحديات‬ ‫تتباين تدفقات االستثامرات األجنبية املبارشة يف منطقة‬ ‫دفعت البالد إىل القيام بجهود لضبط األوضاع املالية العامة‪،‬‬ ‫مجلس التعاون الخليجي من دولة إىل أخرى‪ .‬فام زالت دولة‬ ‫وال سيام من خالل تعزيز توليد اإليرادات غري النفطية‪ .‬وقد‬ ‫اإلمارات العربية املتحدة تتصدر املشهد كوجهة رئيسية‬ ‫تقلص الفائض املايل يف قطر بسبب انخفاض عائدات النفط‬ ‫تجتذب استثامرات كبرية يف قطاعات مثل التصنيع والسياحة‬ ‫والغاز‪ .‬أما يف لسلطنة عامن‪ ،‬فقد ساعد الرتكيز املستمر عىل‬ ‫والتمويل‪ ،‬وذلك مبساعدة اإلصالحات الرئيسية املنفذة لتبسيط‬ ‫ضبط األوضاع املالية العامة يف استقرار وضعها املايل والحفاظ‬ ‫اللوائح التنظيمية‪ ،‬وتخفيف القيود عىل امللكية األجنبية‪،‬‬ ‫ًة بالعام املايض بسبب‬ ‫عىل فائض مايل‪ ،‬وإن كان يتقلص مقارن ً‬ ‫وتقديم حوافز الستقطاب املستثمرين العامليني‪ .‬ويف املقابل‪،‬‬ ‫انخفاض عائدات الغاز‪ .‬وعىل الجانب اُمل ُرشق‪ ،‬تحافظ اإلمارات‬ ‫ظّلّت تدفقات االستثامرات األجنبية املبارشة يف اململكة العربية‬ ‫ّد الكبري‬ ‫العربية املتحدة عىل وضعية مالية قوية بفضل الح ّ‬ ‫ٍّد كبري‪ ،‬مام يسلط الضوء عىل تحديات‬ ‫السعودية مستقرة إىل ح ٍ‬ ‫من اإلنفاق الحكومي وفرض رضيبة الرشكات‪ ،‬مام أدى إىل‬ ‫الحفاظ عىل ثقة املستثمرين عىل الرغم من إصالحات رؤية‬ ‫تنويع مصادر اإليرادات‪ .‬ويف املدى املتوسط‪ ،‬من املتوقع أن‬ ‫‪ ٢٠٣٠‬الطموحة التي تهدف إىل تبسيط األنظمة وتعزيز التحول‬ ‫تظل األرصدة املالية لدول مجلس التعاون الخليجي يف حالة‬ ‫االقتصادي‪.‬‬ ‫عجز يف الفرتة بني ‪( ٢٠٢٦ ٢٠٢٥‬بنحو ‪ ٠.٢‬يف املائة من الناتج‬ ‫تعترب االحتياطيات الدولية عند مستويات مناسبة‪ ،‬مام وفر‬ ‫املحيل اإلجاميل)‪ ،‬حيث سيكون لتمديد فرتة تخفيضات إنتاج‬ ‫لدول املنطقة هوامش أمان مهمة الستيعاب الصدمات‬ ‫النفط من قبل منظمة أوبك‪ +‬حتى نهاية عام ‪ ،٢٠٢٥‬إىل جانب‬ ‫االقتصادية‪ .‬ويف عام ‪ ،٢٠٢٣‬ظلت االحتياطيات الدولية قوية يف‬ ‫االنخفاض النسبي يف أسعار النفط وارتفاع النفقات يف دول‬ ‫معظم الدول‪ ،‬حيث حققت اإلمارات العربية املتحدة منوًا ً كبريًًا‬ ‫املنطقة‪ ،‬آثارا سلبية عىل الحسابات املالية‪.‬‬ ‫نتيجة تدفقات ملحوظة من االستثامرات األجنبية املبارشة‪ .‬ويف‬ ‫لقد أظهرت ديناميكيات الدين يف دول مجلس التعاون‬ ‫املقابل‪ ،‬شهدت كل من اململكة العربية السعودية والكويت‬ ‫الخليجي اتجاهات متباينة بني البلدان‪ .‬فقد أحرزت ُ‬ ‫ُعامن‬ ‫تراجعًاً يف االحتياطيات بسبب انخفاض صادرات النفط‪ ،‬وإن‬ ‫تقدمًاً كبريًا ً‪ ،‬وخفضت دينها العام بنحو ‪ ٣‬نقاط مئوية من‬ ‫كان من مستويات مريحة‪ .‬ويعزز تراكم اإلحتياطيات األجنبية‬ ‫الناتج املحيل اإلجاميل يف غضون عام واحد‪ ،‬مام يدل عىل‬ ‫من استقرار الحسابات الخارجية ويشكل حامية أساسية يف‬ ‫التزامها باالنضباط املايل‪ .‬أما يف البحرين فال يزال وضع الدين‬ ‫وجه التقلبات املالية العاملية‪.‬‬ ‫يشكل تحديًاً‪ ،‬إذ بلغ الدين العام حواىل ‪ ١٢٣‬يف املائة من الناتج‬ ‫وقد شهدت أسواق العمل يف منطقة دول مجلس التعاون‬ ‫املحيل اإلجاميل يف عام ‪ ٢٠٢٣‬ومن املتوقع أن يظل أعىل من‬ ‫الخليجي منوًاً معتدًالً يف التوظيف‪ ،‬عىل الرغم من استمرار‬ ‫‪ ١٠٠‬يف املائة خالل الفرتة بني ‪ ٢٠٢٤‬و‪.٢٠٢٦‬‬ ‫التحديات الهيكلية املرتبطة باختالل التوازن بني الجنسني‬ ‫وتتجنب دول مجلس التعاون الخليجي ذات االقتصادات القوية‬ ‫وبطالة الشباب‪ .‬ويف حني نجحت العديد من االقتصادات‬ ‫واملتنوعة املخاطر التي تهدد مراكزها الخارجية نتيجة انخفاض‬ ‫يف خفض املعدالت اإلجاملية للبطالة ‪ ،‬فإن وترية استحداث‬ ‫عائدات السلع األساسية وارتفاع الواردات‪ ،‬وذلك بدعم من‬ ‫فرص العمل متفاوتة يف ما بينها‪ ،‬ومعدالت املشاركة ال تتزايد‬ ‫االحتياطيات القوية من العمالت األجنبية‪ .‬وقد حافظت‬ ‫بشكل موحد‪ ،‬مام يشري إىل الحاجة إىل جهود سياسية أكرث‬ ‫ُعامن والبحرين‬ ‫وعززت كل من اإلمارات العربية املتحدة و ُ‬ ‫استهدافًاً‪ .‬وال تزال مشاركة املرأة يف القوة العاملة تشكل تحديًًا‬ ‫وقطر عىل مراكز حساباتها الخارجية‪ .‬ففي اإلمارات العربية‬ ‫رئيسيًاً‪ ،‬عىل الرغم من التقدم الذي تحقق سابقًاً‪ .‬وعىل صعيد‬ ‫املتحدة‪ ،‬ال يزال ارتفاع الصادرات غري النفطية تسهم يف تحقيق‬ ‫التوظيف‪ ،‬يستمر النمو القوي يف كل من اإلمارات العربية‬ ‫فائض يف الحساب الجاري‪ ،‬مستفيدا من اتفاقيات التجارة‬ ‫ُعامن والبحرين مدعوم�ا باسرتاتيجيات‬ ‫املتحدة وسلطنة ُ‬ ‫ُعامن والبحرين‪ ،‬ال يزال فائض الحساب‬ ‫الحرة‪ .‬أما يف كل من ُ‬ ‫ّنيها‪ .‬وتشهد‬ ‫ّ‬ ‫تب‬ ‫إىل‬ ‫البلدان‬ ‫عمدت‬ ‫التي‬ ‫التوازن بني الجنسني‬ ‫الجاري مدعومًاً بنمو الصادرات الهيدروكربونية‪ .‬وتعزز مركز‬ ‫الكويت ارتفاعًاً يف توظيف غري الكويتيني يف القطاع الخاص‪ ،‬يف‬ ‫قطر الخارجي بشكل أكرب‪ ،‬إذ سجلت فائض الحساب الجاري‬ ‫ٍّد كبري يف القطاع العام‪ .‬ويف‬ ‫حني يتم توظيف املواطنني إىل ح ٍ‬ ‫األكرب بفضل النمو القوي يف صادرات الخدمات‪ ،‬مدفوعًاً بقطاع‬ ‫ّجل معدل بطالة‬ ‫قطر‪ ،‬يستمر استقرار سوق العمل الذي س ّ‬ ‫السياحة‪ .‬ومن بني دول مجلس التعاون الخليجي الست‪،‬‬ ‫منخفض‪ ،‬عىل الرغم من توقع ارتفاع طفيف يف البطالة يف عام‬ ‫تواجه اململكة العربية السعودية والكويت ضغوطًاً كبرية عىل‬ ‫ًة بني النساء‪ ،‬مام يؤدي إىل تفاقم أوجه التفاوت‬ ‫‪ ،٢٠٢٤‬وخاص ً‬ ‫حساباتهام الجارية‪ ،‬إىل جانب تقلص الفائض يف عام ‪ .٢٠٢٤‬ويف‬ ‫القامئة بني الجنسني‪ .‬وال تزال البطالة بني الشباب تسيطر عىل‬ ‫املدى املتوسط‪ُ ،‬يُتوقع أن يتقلص فائض الحساب الجاري لدول‬ ‫سوق العمل ‪ ،‬مام يبنّين الحاجة إىل تكثيف إصالحات سوق‬ ‫مجلس التعاون الخليجي إىل ‪ ٧.١‬يف املائة من الناتج املحيل‬ ‫العمل واسرتاتيجيات اإلدماج للحفاظ عىل املكاسب االقتصادية‬ ‫اإلجاميل يف عام ‪ ،٢٠٢٤‬وهو ما يعكس بشكل أسايس انخفاض‬ ‫وتوسيع نطاقها‪.‬‬ ‫َمني ‪ ٢٠٢٥‬و‪ ،٢٠٢٦‬سيوفر‬ ‫صادرات الطاقة‪ .‬ويف الفرتة بني العا َ‬ ‫األداء القوي لصادرات الخدمات يف معظم دول مجلس التعاون‬ ‫‪07‬‬ ‫مخلص تنفيذي‬ ‫إن االستثامر يف قطاع املياه ملواجهة لتحديات املرتقبة يف‬ ‫وتسلط التطورات التي تشهدها اقتصادات دول مجلس‬ ‫السنوات الخمسني املقبلة من شأنه أن يساهم يف تنويع‬ ‫التعاون الخليجي الضوء عىل أهمية السياسة املالية املعاكسة‬ ‫ّد التنوع‬ ‫َع ّ‬ ‫اقتصادات دول مجلس التعاون الخليجي‪ .‬وُيُ َ‬ ‫للدورة االقتصادية يف تأمني استقرار االقتصاد‪ .‬فمن خالل‬ ‫االقتصادي أمر�ا رضوري�ا لتحقيق النمو عىل املدى الطويل‪،‬‬ ‫مواجهة الدورة االقتصادية‪ ،‬تساهم مثل تلك السياسات يف‬ ‫ًة يف املناطق التي تعتمد بشكل كبريعىل قطاعات‬ ‫وخاص ً‬ ‫الحد من تعرض االقتصاد للصدمات‪ ،‬يف حني ميكن للسياسة‬ ‫مثل الزراعة أو استخراج املوارد‪ .‬وتلعب املياه دورًا ً حيويًاً يف‬ ‫املالية املسايرة للدورة االقتصادية أن تؤدي إىل تفاقم تقلباتها‪.‬‬ ‫هذا السياق من خالل دعم الصناعات املتنوعة‪ .‬وال تساهم‬ ‫وعىل مدى العقدين املاضيني‪ ،‬اتبعت دول مجلس التعاون‬ ‫االستثامرات يف املشاريع املتصلة باملياه يف تأمني الوصول إىل‬ ‫الخليجي بشكل عام سياسات املالية املعاكسة للدورة‬ ‫مورد حيوي فحسب‪ ،‬بل تفتح أيضًاً آفاقًاً للتحول االقتصادي‪.‬‬ ‫االقتصادية‪ ،‬حيث كانت النفقات الحكومية معاكسة للدورة‬ ‫ّد تأمني التمويل يف ظل محدودية رؤوس أموال من العوامل‬ ‫ويع ّ‬ ‫ُعامن واململكة العربية السعودية والكويت‬ ‫االقتصادية يف ُ‬ ‫املعرقلة لالستثامر وفقا ل لألولويات املختلفة‪ .‬وُتُعترب الرشاكات‬ ‫واإلمارات العربية املتحدة والبحرين‪ ،‬ولكنها كانت مسايرة‬ ‫املبتكرة بني القطاعني العام والخاص‪ ،‬والقروض امليرسة‪،‬‬ ‫للدورة االقتصادية بشكل طفيف يف قطر‪ .‬ويف املقابل‪ ،‬كانت‬ ‫الُسبل املقرتحة لسد هذه الفجوة‪.‬‬ ‫واملساعدات اإلمنائية من ُ‬ ‫اإليرادات الحكومية معاكسة للدورة االقتصادية يف جميع‬ ‫إن األمن املايئ يدعم اإلنتاجية يف مختلف القطاعات‪ ،‬وخاص ً‬ ‫دول مجلس التعاون الخليجي‪ ،‬متأثر ً‬ ‫ًة بإيرادات النفط والغاز‬ ‫ًة‬ ‫املتقلبة‪ .‬هذه االتجاهات اختلفت مبرور الوقت‪ :‬فبينام اتجهت‬ ‫يف قطاع الزراعة‪ ،‬مام يساهم يف توليد فرص العمل‪ُ .‬ت ُعترب‬ ‫ُعامن نحو معاكسة أقوى للدورة االقتصادية‪،‬‬ ‫قطر والكويت و ُ‬ ‫قضايا معالجة ندرة املياه وجودتها أمرًا ً بالغ األهمية لضامن‬ ‫ابتعدت اإلمارات العربية املتحدة واململكة العربية السعودية‬ ‫املرونة االقتصادية وتخفيف املخاطر التي تهدد النظم الغذائية‬ ‫عنها‪ .‬وأظهرت البحرين تحسن�ا طفيف�ا يف معاكسة الدورة‬ ‫والصحة العامة واالستقرار االقتصادي عمومًاً‪ .‬وملعالجة‬ ‫االقتصادية عىل صعيد اإليرادات مقابل إنفاق أقل معاكسة‬ ‫التحديات املزدوجة املتمثلة يف الضغوط االقتصادية واألمن‬ ‫للدورة االقتصادية‪ .‬وعىل الصعيد الدويل‪ُ ،‬يُعترب أداء دول‬ ‫املايئ‪ ،‬يتعني عىل الحكومات دمج إدارة املوارد املائية يف‬ ‫مجلس التعاون الخليجي جيدًا ً نسبيًاً يف تبني سياسات مالية‬ ‫التخطيط االقتصادي الكيل‪ .‬ومن املمكن أن تساهم السياسات‬ ‫ًة بالدول األخرى يف منطقة‬ ‫معاكسة الدورة االقتصادية مقارن ً‬ ‫التي تعزز مشاركة القطاع الخاص يف قطاع املياه يف تخفيف‬ ‫الرشق األوسط وشامل أفريقيا‪ ،‬ولكنها مل تلحق بعد بسياسات‬ ‫األعباء املالية مع ترسيع تطوير البنية التحتية الرضورية‪ .‬كام‬ ‫الدول األخرى ذات الدخل املرتفع‪.‬‬ ‫ٌر محوري إلدارة املوارد‬ ‫أن تعزيز األطر املؤسسية والحوكمة أم ٌ‬ ‫املائية واالستثامر فيها بشكل فعال‪.‬‬ ‫تحت املجهر‪ :‬مواجهة تحديات قضايا املياه يف دول مجلس‬ ‫كذلك ُتُعترب املياه عنرص�ا أساسي�ا لتحقيق أهداف التنمية‬ ‫التعاون الخليجي‬ ‫املستدامة‪ ،‬وهي مرتبطة ارتباطًاً جوهريًاً مبتغريات االقتصاد‬ ‫تواجه دول مجلس التعاون الخليجي مجموعة معقدة‬ ‫الكيل الرئيسية مثل منو الناتج املحيل اإلجاميل‪ ،‬والعاملة‪،‬‬ ‫وطارئة من التحديات يف إدارة مواردها املائية‪ .‬وتتداخل هذه‬ ‫ّد من أن تلبي املياه االحتياجات‬ ‫واإلنتاجية الصناعية‪ .‬ال ب ّ‬ ‫التحديات بشكل وثيق مع التحديات املتمثلة يف مناخها الجاف‪،‬‬ ‫املختلفة للسكان والقطاعات االقتصادية والبيئة‪ .‬ومن املمكن‬ ‫ّوها السكاين الرسيع‪ ،‬وهياكلها االقتصادية‪ ،‬واعتامدها عىل‬ ‫ومن ّ‬ ‫أن تعوق املخاطر املرتبطة بغياب األمن املايئ من التقدم‬ ‫القطاعات كثيفة االستهالك للمياه‪ .‬ويف ما ييل ملخص للفصل‬ ‫االجتامعي واالقتصادي باإلضافة إىل األنشطة الصناعية أو‬ ‫املخصص للرتكيز عىل تلك القضية‪ ،‬والذي يقدم رسدًا ً متسقا‬ ‫املخرجات الزراعية‪ ،‬األمر الذي يزيد من الضغوط عىل االقتصاد‬ ‫حول قطاع املياه يف دول مجلس التعاون الخليجي ودوره‬ ‫الكيل‪ .‬ويشكل االستثامر االسرتاتيجي يف كفاءة استخدام املياه‬ ‫الحاسم يف تشكيل املستقبل االقتصادي والبيئي للمنطقة‪.‬‬ ‫وتقنيات توفري املياه حجر الزاوية للتنويع االقتصادي وتعزيز‬ ‫قدرة االقتصاد عىل مواجهة الصدمات‪.‬‬ ‫األهمية االقتصادية لألمن املايئ يف دول مجلس التعاون‬ ‫الخليجي‬ ‫ندرة املياه وفرط االعتامد عليها‬ ‫تساهم القطاعات املعتمدة عىل املياه إسهامًاً كبريًاً يف اقتصادات‬ ‫ُتُعّدّ منطقة مجلس التعاون الخليجي واحدة من أكرث مناطق‬ ‫دول مجلس التعاون الخليجي‪ .‬فعىل سبيل املثال‪ ،‬يرتبط ما بني‬ ‫ًة يف املياه‪ ،‬حيث غالبًاً ما يكون مستوى توافر‬ ‫العامل ندر ً‬ ‫‪ ٥١‬و‪ ٥٨‬يف املائة من القيمة املضافة اإلجاملية وأكرث من ‪ ٩٠‬يف‬ ‫املياه العذبة املتجددة دون الـامئة مرت مكعب للفرد سنويًاً ــ‬ ‫املائة من أرباح التصدير يف بعض دول مجلس التعاون الخليجي‬ ‫وهو مستوى أدىن بكثري من الحد األدىن للندرة عامليا‪ .‬وتؤدي‬ ‫بالصناعات كثيفة االستهالك للمياه‪ .‬هذا االستخدام غري املستدام‬ ‫هذه الندرة الشديدة إىل االعتامد املفرط عىل املياه الجوفية‬ ‫ّوض جهود التنويع‬ ‫للموارد املائية يشكل نقاط ضعف تهدد بتق ّ‬ ‫غري املتجددة وكذلك عىل تحلية املياه التي تتطلب قدرًا ً كبريًًا‬ ‫االقتصادي‪ ،‬خصوصًاً يف الوقت الذي تسعى فيه دول مجلس‬ ‫من الطاقة‪ .‬وتستهلك الزراعة‪ ،‬وهي املحرك الرئييس الستخدام‬ ‫التعاون الخليجي إىل تقليل اعتامدها عىل عائدات النفط‪.‬‬ ‫املياه‪ ،‬ما بني ‪ ٨٠-٧٠‬يف املائة من إمدادات املياه ولكنها تساهم‬ ‫‪08‬‬ ‫مخلص تنفيذي‬ ‫فقط منها‪ ،‬مام يرتك مجاًالً كبريًا ً للتحسني‪ .‬كام تؤدي عدم كفاءة‬ ‫بشكل ضئيل يف الناتج املحيل اإلجاميل‪ ،‬وهو ما يسلط الضوء‬ ‫االستثامرات والتحديات التشغيلية إىل تقييد إمكانات القطاع‬ ‫عىل عدم الكفاءة يف تخصيص املياه عرب القطاعات اإلنتاجية‬ ‫بشكل أكرب مثل خسائر الكبرية املرتبطة باملياه غري املد ّ‬ ‫ّرة‬ ‫لالقتصاد‪.‬‬ ‫للدخلز‪.‬‬ ‫دور املياه يف الحد من الضغوط املناخية والبيئية‬ ‫أخريًا ً‪ ،‬يقدم التقرير خمسة مسارات ميكن تبنيها لسياسيات‬ ‫لقطاع املياه واملبنية عىل األدلة واملعايري املرجعية يف دول‬ ‫يؤدي تغري املناخ إىل تفاقم الضغوط املائية من خالل زيادة‬ ‫مجلس التعاون الخليجي‪ .‬وهي‪:‬‬ ‫وترية موجات الجفاف وارتفاع درجات الحرارة‪ ،‬وزيادة التبخر‬ ‫وإجهاد النظم البيئية الهشة‪ .‬ويهدد استنزاف املياه الجوفية‬ ‫· تعزيز كفاءة املياه‪ :‬إصالح سياسات التسعري وتحسني‬ ‫وامللوحة األمن املايئ يف األمد البعيد‪ ،‬بسبب اإلفراط يف استخراج‬ ‫استخدامات املياه يف الزراعة والصناعة‪.‬‬ ‫املياه لالستخدامات الزراعية والحرضية‪ ..‬ويبقى الحفاظ عىل‬ ‫كاٍف‪ ،‬إىل جانب ضعف‬ ‫التنوع البيولوجي واألرايض الرطبة غري ٍ‬ ‫· توسيع املصادر غري التقليدية للمياه‪ :‬توسيع نطاق إعادة‬ ‫األداء بالنسبة إىل مؤرشات النظم البيئية املائية املحمية‪.‬‬ ‫استخدام مياه الرصف الصحي وتبني تقنيات تحلية املياه‬ ‫املعتمدة عىل الطاقة املتجددة‪.‬‬ ‫القيود املالية والحوكمة‬ ‫· تعزيز الحوكمة‪ :‬تعزيز األطر التنظيمية وتشجيع التعاون‬ ‫من شأن الدعم الكبري لسعر استهالك املياه أن يولد اختالالت‬ ‫اإلقليمي بشأن تحديات املياه املشرتكة‪.‬‬ ‫يف قيمتها ويثني عن االستخدام الكفء للمياه‪ .‬كام أن الضغوط‬ ‫املالية املرتبطة بتقلب عائدات النفط تقود من القدرة عىل‬ ‫· االستثامر يف القدرة عىل امتصاص الصدمات‪ :‬بناء البنية‬ ‫الحفاظ عىل مستويات مناسبة من االستثامر العام يف البنية‬ ‫التحتية الكفيلة بالتخفيف من مخاطر املناخ وحامية النظم‬ ‫ّد أوجه القصور يف مجال الحوكمة‪،‬‬ ‫األساسية للمياه‪ .‬كذلك‪ ،‬تح ّ‬ ‫البيئية‪ ،‬إىل جانب دمج الحلول القامئة عىل الطبيعة‪.‬‬ ‫مثل تجزؤ السياسات وضعف إنفاذ الضوابط‪ ،‬من فعالية إدارة‬ ‫· تعزيز الرشاكات بني القطاعني العام والخاص‪ :‬االستفادة‬ ‫موارد املياه‪.‬‬ ‫من استثامرات القطاع الخاص والخربة املتوفرة فيه ملعالجة‬ ‫تواجه اقتصادات دول مجلس التعاون الخليجي قيودًًا‬ ‫فجوات التمويل وتحسني الخدمات املقدمة‪.‬‬ ‫وضغوطًاً مالية يف محاولتها تحقيق التوازن بني االستثامرات‬ ‫نحو توفري األمن املايئ‬ ‫العامة العاجلة ومحدودية املوارد‪ .‬وتتطلب املياه‪ ،‬باعتبارها‬ ‫رضورة أساسية‪ ،‬استثامرات كبرية لدعم كل من االحتياجات‬ ‫تتطلب إدارة املياه ‪ -‬باعتبارها موردًاً اسرتاتيجيًاً يف دول مجلس‬ ‫االجتامعية والنمو االقتصادي‪ .‬وتلعب ديناميكيات الدين العام‬ ‫التعاون الخليجي ‪ -‬تحوالت يف السياسات‪ ،‬ال سيام يف مجال‬ ‫دورًا ً محوريًاً‪ ،‬حيث غالبًاً ما تقوم دول مجلس التعاون الخليجي‬ ‫الزراعة‪ ،‬ملعالجة الضغوط املائية الشديدة إىل جانب موازنة‬ ‫بتمويل البنية األساسية للمياه مع الحرص عىل الحفاظ عىل‬ ‫التأثريات االقتصادية والتشغيلية‪ .‬وميكن لالستثامر يف تقنيات‬ ‫االنضباط املايل‪ .‬وتستوجب مستويات الدين العام املتزايدة‬ ‫توفري املياه والري املتطورة أن تسهم يف تحسني استخدام املياه‪،‬‬ ‫تحديد األولويات بعناية واعتامد آليات متويل مبتكرة‪ .‬ويؤكد‬ ‫يف حني ميكن لإلصالحات الهيكلية‪ ،‬كالرتكيز عىل املحاصيل األقل‬ ‫التقرير حول آخر املستجدات االقتصادية ملنطقة الخليج الذي‬ ‫استهالكًاً للمياه واالعتامد عىل الواردات الغذائية العاملية‪ ،‬أن‬ ‫يتضمن قسًامً خاصَاَ يسلط الضوء عىل موضوع «املياه» عىل‬ ‫تخفض من أثر الزراعة عىل املوارد املائية من دون املساس‬ ‫الحاجة امللحة إىل اتخاذ إجراءات منسقة يف القطاعني العام‬ ‫باألمن الغذايئ‪ .‬وميكن أن يؤدي إعادة توجيه االستثامرات إىل‬ ‫والخاص ملعالجة قضايا املياه‪ ،‬والحد من الضغوط املالية‪،‬‬ ‫القطاعات املوفرة للمياه مثل الطاقة املتجددة والخدمات‬ ‫وإطالق العنان لإلمكانات االقتصادية‪.‬‬ ‫اللوجستية والتكنولوجيا إىل خلق فرص عمل عالية القيمة‪،‬‬ ‫وتعويض خسائر العاملة الناجمة عن اإلصالحات الزراعية‪ .‬غري‬ ‫البنية األساسية والفرص التكنولوجية‬ ‫أن االعتبارات األخرى كتلك الخاصة باألمن الغذايئ واإلنتاج‬ ‫تحتل دول مجلس التعاون الخليجي الصدارة عامليا يف مجال‬ ‫الوطني قد تدفع الحكومات إىل الحفاظ عىل الزراعة املوجهة‬ ‫تحلية املياه‪ ،‬لكنها تواجه من أجل ذلك تكاليف مرتفعة‪،‬‬ ‫للتصدير‪ ،‬عىل الرغم من استخدامها غري املستدام للمياه‬ ‫وطلب متزايد عىل الطاقة‪ ،‬واختيارات صعبة فيام خص‬ ‫والتوترات الجيوسياسية املحتملة‪.‬‬ ‫القضايا البيئية‪ .‬وال تزال مياه الرصف الصحي املعالجة غري‬ ‫مستغلة بالكامل‪ ،‬حيث يتم إعادة استخدام حواىل ‪ ٣٥‬يف املائة‬ ‫‪09‬‬ ‫مخلص تنفيذي‬ Chapter 01 Page 10 – 20 Recent Developments GCC economies face oil sector contractions while non-oil growth remains resilient as diversification efforts progress in most countries. conomic growth in the GCC agreements to reduce output (Figure 2). E countries in 2024 contin- Saudi Arabia, Kuwait, Oman and Bahrain ues to depend on develop- experienced significant oil sector contractions ments in the global energy of 8.9, 9.8, 4.0 and 2.1 percent, respectively. Qa- markets. Reductions in oil tar’s hydrocarbon sector remained stable with output and ongoing volatility a modest growth of 1.4 percent, underpinned in global energy prices have by its LNG production expansion, despite dis- constrained growth for major oil-exporting ruptions in global gas markets. The UAE saw economies, with overall GCC growth showing a 4 percent decline in oil production, but this 1 The UAE Energy a slight decrease of 0.1 percent in H1 2024 and was partially offset by a 14.3 percent rise in Strategy 2050 a 7.5 percent contraction in oil GDP (Figure 1). natural gas output, reflecting the country’s targets an energy Non-oil sectors have shown resilience with 3.8 broader focus on energy diversification.1 Across mix as follows: 44 percent growth in H1 2024, driven by diversifi- the region, oil output remains constrained by percent clean energy; 38 percent gas; 12 cation efforts in the region. the OPEC+ quota agreements, limiting fiscal percent clean coal; revenues and posing challenges for broader and 6 percent nuclear. The oil sector across the GCC contracted economic growth. Source: UAE Energy by 7.5 percent in H1 2024, driven by OPEC+ Strategy 2050. 10 chapter 1 GULF ECONOMIC UPDATE Non-oil sector growth remained robust, ex- ported by gains in financial services, tourism, panding by 3.8 percent in H1 2024, helping and transport, underscoring the success of to mitigate the impact of oil sector contrac- service-oriented diversification strategies in tions. Several economies also saw growth re- both economies. cover over the past three quarters (Figure 3). High-frequency indicators, such as the PMI Driven by ambitious reform agendas, GCC index (Figure 4), also confirm non-oil economic countries are making significant strides expansion through H1 2024 albeit signs of weak- toward economic diversification. Saudi ness are emerging in the most recent months. Arabia’s Vision 2030 has spurred substantial Key highlights regarding the non-oil growth in investments in tourism, with visitor numbers individual countries for 2024 are given below: rising by 73 percent above 2019 levels in the first seven months of 2024. The country has Bahrain: Expansion of the non-oil economy by made significant progress in renewable ener- 3.1 percent in H1 2024, with accommodation and gy in 2024, including signing power purchase food services, and business activities important agreements for 5.5 GW of solar projects worth contributors. US$3.28 billion and initiating annual tenders for 20 GW of new capacity to achieve its Vision Kuwait: The non-oil sector rebound to 4.2 per- 2030 targets.2 The UAE continues to lead in re- cent in Q2 following a contraction in late 2023. gional diversification, with Q1 2024 real growth Overall, the non-oil economy in Kuwait grew by of 7.9 percent in financial services, 7.3 percent in 3.5 percent in H1 2024, driven by gains in oth- logistics, and 5.6 percent in technology. Qatar er services including real estate (6.2 percent) has capitalized on international sporting events and manufacturing (5.7 percent) and offset by to bolster non-hydrocarbon growth, solidifying declines in public administration, telecommu- its position as a sports tourism hub with a 26 nications, and hospitality. percent increase in visitor numbers over the first eight months of 2024 compared to the Oman: Recorded a 4.3 percent growth in same period of the previous year. Additionally, H1 2024, driven by growth in agriculture,re- Qatar is prioritizing its IT sector, achieving 2 Ministry of Energy, fined petroleum products, manufacturing, and over 90 percent 5G coverage in populated ar- Saudi Arabia. “ Saudi transport. eas, supported by extensive broadband and Power Procurement 5G infrastructure. In October 2024, the Qatar Company (SPPC) Qatar: The non-hydrocarbon sector grew at Investment Authority (QIA) announced the Signs Power Purchase Agreements for Three a more moderate pace of 1.1 percent, though merger of Qatar National Broadband Network New Solar Energy this was bolstered by a notable 26 percent rise (QNBN) and Gulf Bridge International (GBI) to Projects with a Total in tourism, driven by major sporting events. enhance digital infrastructure and position Qa- Capacity of 5,500 tar as a leading regional and global digital hub.3 MW.” 2024. https:// Saudi Arabia: The non-oil sector expanded by Oman is enhancing its business environment, www.moenergy.gov.sa/ en/MediaCenter/News. 4.4 percent in Q2, driven by strong performance with a real increase in manufacturing output in tourism, retail, and hospitality, with a 5.9 up by 11.8 percent and agricultural growth by 3 Qatar Investment percent increase in the wholesale, restaurant, 6.6 percent in H1 2024. Bahrain is focusing on Authority (QIA). “QIA to combine QNBN & and hotel sectors. growth in accommodation and food services, GBI as part of efforts and business activities, which expanded by 10.7 to enhance Qatar’s UAE: The non-oil economy maintained strong percent and 9.4 percent, respectively, in the H1 digital infrastructure momentum with 4 percent growth in Q1, sup- 2024, among others. ecosystem.” Oct 2024. 73% Increase in visitor numbers in Saudi Arabia during the first 7 months of 2024, compared to 2019 11 chapter 1 GULF ECONOMIC UPDATE FIGURE 1 The GCC region is FIGURE 2 ...mainly due to a contraction experiencing a deceleration in in the oil sector, while non- growth during 2024... oil sector remains resilient. 0,5 GCC - Non-Oil GCC - Oil 0,4 6 0,3 4 GCC growth, sa, percent 0,2 2 0,1 Growth, sa, percent 0 0,0 -2 -0,1 -4 -0,2 -6 -0,3 -8 -0,4 2023 2024:Q1 2024:Q2 -10 2023 2024:Q1 2024:Q2 Source: Haver and World Bank staff calculations. Source: Haver Analytics and World Bank staff calculations. Note: Quarterly data calculated as weighted average of Note: Quarterly data calculated as weighted average of available data (Q1:2024 include KSA,UAE,KWT,OMN,BHR and available data (Q1:2024 include KSA,UAE,KWT,OMN,BHR and Q2:2024 include KSA, KWT, OMN, BHR) Q2:2024 include KSA, KWT, OMN) FIGURE 3 Growth recovered for several FIGURE 4 ... however the PMI survey, economies over H1… an indication of economic trends in private sector manufacturing and service sectors, is on a slightly declining trend. BHR QTR KSA KSA UAE QTR UAE OMN KWT 70 8 PMI: Total Economy Output (Index) 65 6 Real GDP Growth (y/y), sa 4 60 2 0 55 -2 -4 50 Above 50 = expansion -6 -8 45 23:Q2 23:Q3 23:Q4 24:Q1 24:Q2 23:M6 23:M9 23:M12 24:M3 24:M6 24:M9 Source: Haver Analytics and World Bank staff calculations. Source: S&P Global Purchasing Managers Survey. Note: Data for UAE, OMN, BHR is not available. 12 chapter 1 GULF ECONOMIC UPDATE FIGURE 5 Oil sector contractions affected FIGURE 6 ...while non-oil sector growth several countries in the across the region remains region… stable and resilient KWT KSA UAE KSA BAH KWT BAH OMN QTR UAE OMN QTR 10 12 Non-Oil GDP Growth, percent, Y/Y, SA 5 10 Oil GDP Growth, percent, Y/Y, SA 0 8 -5 6 4 -10 2 -15 0 -20 -2 -25 -4 -30 -6 23:Q2 23:Q3 23:Q4 24:Q1 24:Q2 24:Q3 23:Q2 23:Q3 23:Q4 24:Q1 24:Q2 Source: Haver and World Bank staff calculations. Source: Haver and World Bank staff calculations. Headline inflation in GCC countries remains low and stable, but significant inflationary pressures are evident in the housing sector. Inflation in the GCC region has remained rel- in August 2024, respectively, despite notable atively moderate compared to global peers, sectoral pressures. In Saudi Arabia, housing averaging 2.3 percent in the first nine month inflation surged to 9.3 percent, while transport of 2024 (Figure 7). GCC central banks have costs saw deflation at -3.5 percent, balancing aligned their policies with U.S. Federal Reserve, overall price stability. Similarly, in the UAE, helping maintain monetary stability, containing Dubai’s inflation reached 3.9 percent, driven inflationary pressure, while supporting domes- by rising housing and transport costs linked tic economic conditions (Figure 8). Sectoral to population growth. Kuwait, Oman, and Qa- inflationary pressures persist, particularly in tar reported easing inflation, at 2.9 percent, housing, which has experienced notable price 1.1 percent, and 1.2 percent, respectively, sup- increases in specific countries, contrasting with ported by monetary policies and government deflationary trends in sectors like transport. interventions, particularly in housing and food. Saudi Arabia and the UAE maintained low Bahrain, with the lowest inflation at 1 percent, headline inflation at 1.5 percent and 2 percent experienced modest pressure from food prices. 13 chapter 1 GULF ECONOMIC UPDATE FIGURE 7 Inflation across GCC remains FIGURE 8 GCC Banks cut rates in 2024, low and stable with some recent following the U.S. Fed rate cut to volatility in Oman and Qatar maintain currency peg with US UAE KSA BHR 24:Q2 24:Q3 QTR KWT OMN 6,5 CB Policy Rate (eop, percent) 4 CPI (2023=100, y/y percent change) 6,0 3 5,5 2 5,0 Percent 1 4,5 0 4,0 -1 3,5 2024:M1 2024:M3 2024:M5 2024:M7 2024:M9 OMN B R QTR KSA UAE KWT Source: Haver and World Bank staff calculations. Source: Haver Analytics FIGURE 9 The banking sector across the GCC remains generally resilient, but NPLs in the UAE are on the higher side Regulatory Capital to Risk-weighted Assets Liquid Assets to Total Assets Nonperforming Loans to Total Gross Loans (rhs) 25 6 5 20 4 Percent (eop) Percent (eop) 15 3 10 2 5 1 0 0 2023 24:Q1 2023 24:Q1 2023 24:Q1 KSA UAE K wait Source: Haver Analytics, IMF FSI database. Note: Data for BHR, QRT, and OMN is not available. The financial sector across the region re- remain strong, reinforcing the sector’s capac- mains strong and resilient. The banking ity to absorb potential shocks from external systems across the GCC countries remain re- economic pressures. Despite global economic silient, supported by strong capital and liquidity challenges and market volatility, GCC banks buffers, low non-performing loans (NPLs), and continue to demonstrate solid financial perfor- effective regulatory oversight (Figure 9). How- mance, with sustained profitability and sound ever, NPLs in UAE’s banking sector were at 5.0 risk management practices, further enhancing percent in Q1 2024, which is on the higher side. their stability and ability to navigate an evolving Capital adequacy ratios and liquidity buffers economic environment. 14 chapter 1 GULF ECONOMIC UPDATE The fiscal position in the GCC countries diverged, with two countries facing widening deficits from rising expenditures and oil revenue fluctuations, while others maintaining stability. Fiscal conditions across the GCC were percent reduction in government spending shaped by a mix of increased government and the introduction of corporate income spending and fluctuating oil revenues, but taxation, which diversified revenue sources. the impact varied significantly between Qatar continues to benefit from substantial countries (Figure 10). While some countries, financial reserves despite a shrinking fis- like Saudi Arabia and Kuwait faced rising fis- cal surplus due to a 15 percent year-on-year cal pressures due to expanding deficits, oth- drop in oil and gas revenues. Oman’s fiscal ers, such as the UAE and Qatar, maintained surplus narrowed to 1 percent of GDP as of stronger fiscal positions. Further details are end-August 2024, down from 1.8 percent a summarized below: year earlier.4 Despite rising public spending, Oman’s continued focus on fiscal consolida- • Some countries faced rising fiscal pres- tion has helped stabilize its fiscal position. sures: Saudi Arabia and Kuwait encoun- Its revenues were impacted by a 15 percent tered significant fiscal pressures in H1 2024, decline in gas receipts, but this was partially primarily driven by rising expenditures and offset by a 12 percent increase in oil revenues. fluctuating oil revenues. Saudi Arabia’s fiscal deficit widened due to a sharp increase in Debt management across the GCC showed spending, particularly on municipal services varying levels of fiscal resilience in 2024 (up 116 percent) and public administration (Figure 11). Oman made significant progress, (up 30 percent). Similarly, Kuwait’s deficit reducing its public debt from 36.5 percent of reached 12.6 percent of GDP in Q1 2024, large- GDP at the end of 2023 to 33.9 percent by mid- ly due to reduced oil revenues and increased 2024, demonstrating its commitment to fiscal government spending. Both countries are discipline. On the other hand, Bahrain’s debt highly reliant on hydrocarbons, underscoring situation remains challenging, with its public the need for accelerated revenue diversifica- debt reaching around 123 percent of GDP in 4 National Centre tion and fiscal reforms. Bahrain, while fac- 2023 and expected to stay above 100 percent for Statistics and ing significant fiscal challenges, is gradually through 2024. The nation has implemented Information (NCSI), reducing its deficit through consolidation fiscal reforms and is actively working to sta- Oman. (2024). Monthly Statistical Bulletin: efforts and enhanced non-oil revenue gen- bilize its financial position, supported by sig- October 2024. URL: eration, although official fiscal data for 2024 nificant GCC financial assistance, including a https://www.ncsi. is yet to be released. remaining US$2.8 billion from a 2018 support gov.om/Elibrary/ package funded by Saudi Arabia, the UAE, LibraryContentDoc/ • While others maintained stronger fiscal and Kuwait. Despite these efforts, Bahrain’s bar_bar_Monthly%20 Statistical%20 positions: The UAE and Qatar maintained high debt level and reliance on hydrocarbon Bulletin%20Oct%20 relatively stronger fiscal positions. The UAE revenues—still accounting for about 75 percent 2024_5f349c50- posted a fiscal surplus of approximately 6 of government income—expose it to fiscal risks, 8f86-4174-9ca0- percent of GDP in Q1 2024, supported by a 20 especially during periods of oil price instability. 2fdad56bfdb2.pdf 15 chapter 1 GULF ECONOMIC UPDATE FIGURE 10 Fiscal balances vary across FIGURE 11 Debt levels broadly stayed countries, influenced by a stable and below MENA combination of increased average in most GCC countries government spending and fluctuating oil revenues GCC (lhs) KSA UAE QTR UAE OMN KWT OMN KWT BHR BHR (rhs) QTR KSA MENA 2 80 150 2 Total GG Debt, percent of GDP Total GG Debt, percent of GDP Fiscal Balance, percent of annual 1 60 100 1 GDP, SA 40 0 -1 50 20 -1 -2 0 0 -2 2023 2024:Q1 2024:Q2 2024:Q3 2013 2015 2017 2019 2021 2023 Source: Haver analytics and WB Staff calculations and estimates. Source: Haver analytics and WB Staff calculations and estimates. The GCC experienced a narrowing current account surplus driven by a decline in commodity revenues and rising imports, but there is significant variation across countries (Figure 12). The GCC’s external sector was characterized • UAE, Oman, Bahrain, and Qatar main- by decline in commodity revenues, increase tained or strengthened their external in investment-driven imports, and improved positions: The UAE’s surplus continues to non-oil export performance. While many be supported not only by oil revenues but economies maintain current account surpluses, also by rising non-oil exports, facilitated by some have experienced a narrowing of these free trade agreements, underscoring the surpluses driven by a reduction in commodity economy’s diversification and its relatively exports and rising imports. Strong foreign re- higher share of non-oil GDP within the GCC serves across the region provide a crucial buffer economies. Oman reported a trade surplus against global uncertainties and oil market fluc- of 12.9 percent of GDP as of end-August 2024, tuations. Further details are summarized below: underpinned by growth in hydrocarbon ex- ports. Bahrain also posted a 5.8 percent of • Saudi Arabia and Kuwait experienced GDP current account surplus in Q2 2024, pressures on their current accounts: aided by higher oil export growth. Qatar’s Saudi Arabia’s current account surplus external position strengthened further, with narrowed to 2.8 percent of GDP in Q1 2024, its current account surplus widening due down from 5.6 percent in Q1 2023, reflecting to robust services export growth, driven by higher import demand and lower oil export the tourism sector, alongside a 4 percent receipts. Similarly, Kuwait saw a 12 percent increase in international reserves. contraction in its trade balance year-on-year in Q1 2024, continuing the moderation of its current account surplus following a decline to 32.9 percent of GDP in 2023. 16 chapter 1 GULF ECONOMIC UPDATE International reserves remained at adequate introduced attractive incentives for global 5 The UNCTAD World levels, providing the region with substantial investors. Notably, the UAE ranked second Investment Report 2024 reports UAE buffers to manage economic shocks (Figure globally, after the United States, in greenfield FDI inflows rising to 13). The GCC has significantly improved its ex- FDI projects in 20236, solidifying its position USD 30.688 billion in ternal balances over the past year, driven mainly among the top global destinations for foreign 2023 from USD 22.737 by the hydrocarbon sector and the growth of investment. In contrast, Saudi Arabia’s FDI billion in 2022, ranking non-oil exports in several countries. In 2023, inflows have remained largely stagnant in 2024. 2nd globally. This growth is driven by international reserves remained strong across While FDI volumes in the second quarter in- full foreign ownership most nations, with the UAE achieving substan- creased by 14.5 percent compared to the first reforms and initiatives tial growth supported by economic diversifica- quarter, total inflows for the first half of 2024 like NextGenFDI, tion efforts, strategic economic initiatives, and were nearly unchanged at 36.41 billion riyals, streamlining business regulatory reforms.5 Meanwhile, Saudi Arabia compared to 36.35 billion riyals in the same setup for tech firms. https://u.ae/en/ and Kuwait faced declines in reserves due to period of 2023. This stagnation highlights information-and- falling oil exports. This accumulation of for- challenges in sustaining investor confidence services/finance-and- eign reserves strengthens external stability despite the ambitious Vision 2030 reforms investment/foreign- and serves as a crucial buffer against global aimed at streamlining regulations and fostering direct-investment/ financial volatility. economic transformation. In response, Saudi foreign-direct- investment-in-the-uae Arabia has introduced new investment laws Foreign Direct Investment (FDI) in the GCC set to take effect in 2025, designed to create a 6 United Nations region presented a mixed picture in 2024. more business-friendly environment for for- Conference on Trade and Development The UAE continues to stand out as a key des- eign investors.7 Overall, FDI inflows across the (UNCTAD), World tination, attracting substantial investments GCC demonstrate varying levels of success, Investment Report in sectors such as manufacturing, tourism, underscoring the region’s long-term growth 2024, https://unctad. and finance. Under its Economic Vision 2030, potential and its focus on building sustainable, org/publication/ the UAE has streamlined regulatory process- non-oil economies. world-investment- report-2024. es, eased foreign ownership restrictions, and 7 Royal Decree No. (M/19) dated 16/01/1446H (corresponding to July 22, 2024) FIGURE 12 Current account surplus FIGURE 13 Meanwhile international narrowed in H1 2024 with reserves remain at robust levels, declining oil receipts bolstering resilience against external shocks. GCC BHR KSA OMN QTR KSA KWT UAE 9 160 Current Account balance, percent of annual 8 International Reserves, January 2023=100 150 7 140 6 130 5 GDP, SA 120 4 3 110 2 100 1 90 0 80 2023 2024:Q1 2024:Q2 Jan-23 May-23 Sep-23 Jan-24 May-24 Sep-24 Source: Haver and World Bank staff calculations. Source: Haver and World Bank staff calculations. 17 chapter 1 GULF ECONOMIC UPDATE Labor markets in the GCC region experienced moderate employment growth, though challenges persist around gender imbalances and youth unemployment. Employment rates continue to improve, but bolstered by the country’s adoption of gender structural challenges, particularly around balance strategies. Kuwait saw a 9 percent gender imbalances and youth unemployment rise in total employment in 2023, driven by a 17 remain. While many economies have success- percent increase in private sector employment fully reduced overall unemployment rates, the of non-Kuwaitis, while nationals remain largely pace of job creation varies, and participation employed in the public sector. Oman and Bah- rates are not uniformly increasing, signaling rain experienced steady employment gains, that more targeted policy efforts are required. especially among women, reflecting targeted Women’s participation in the workforce remains national policies aimed at increasing female a central challenge, despite progress in several workforce participation. These policies include economies. Youth unemployment continues to granting allowances and maternity benefits, outpace the broader labor market, suggest- promoting more women to senior positions ing that labor market reforms and inclusion and supporting female entrepreneurs would strategies will need to be intensified to sustain generate positive demonstration effects to in- and broaden economic gains. In Saudi Arabia, crease female labor participation, among other. the unemployment rate decreased from 4.2 In Qatar, labor market stability persists with a percent in Q1 2023 to 3.5 percent in Q1 2024. low unemployment rate of 0.13 percent, though The UAE continues to see strong employment a slight rise in unemployment is expected in growth, with the employment-to-population 2024, primarily among women, exacerbating ratio projected to reach 80.3 percent in 2024, existing gender disparities. 18 chapter 1 GULF ECONOMIC UPDATE BOX 1 Labor market reforms to boost employment of nationals in the private sector in GCC GCC economies have historically relied on foreign labor to achieve development goals, with the ratio of expatriates exceeding 52 percent across the region. However, with a rapidly growing youth population, the challenge of providing private sector jobs for nationals has intensified. Key Labor Market Insights: • Public Sector Dominance: The public sector is the primary employer of nationals, with around 83.5 percent of public sector workers in the GCC being local citizens in 2022. This preference for public sector jobs has persisted over time. Attractive compensation and job security make government roles more desirable, often overshadowing private sector opportunities for nationals. • Foreign Dominance in Private Sector: Expatriates make up over 88 percent of private sector jobs in the GCC, with varying degrees among different countries – 88.5 percent of the total population in the UAE, 87.9 percent in Qatar, 70.1 percent in Kuwait, and 53.2 percent in Bahrain, with Oman and Saudi Arabia at 42 percent and 40 percent, re- spectively (GLMM, 2023). Bahrain and Oman have seen increases in foreign labor in their private sectors, while Saudi Arabia has shown slight improvement. • Wage Distortions: Private sector wages for non-nationals are significantly lower than for nationals at similar education levels, leading employers to favor expatriates, particularly for lower-skilled positions. FIGURE 14 Share of nationals and non-nationals of total private sector employment, percent 2019 2020 2021 2022 2023 100 90 80 70 60 50 40 30 20 10 0 National Non-national National Non-national National Non-national National Non-national National Non-national National Non-national B h ain K wait Om n Qa a Sa di Arabia UAE Source: Haver, DLX database. 19 chapter 1 GULF ECONOMIC UPDATE 8 Ministry of Finance To boost national employment in the private sector, GCC countries continue to implement various measures, and National Economy, some of them are listed below: Bahrain. (2021). Economic Recovery Bahrain: A draft law to amend Bahrainization policies is under review, emphasizing the hiring of Bahraini nationals in key Plan. URL: https:// sectors like healthcare, law, accounting, education, banking, and aviation. It mandates companies to hire Bahrainis within www.mofne.gov.bh/ two years and limits foreign workers to 30 percent of the workforce in private-sector establishments. Violations may incur en/project-initiatives/ fines of up to 20 percent of a foreign worker’s salary. The government aims to employ 20,000 Bahrainis and train 10,000 economic-recovery- by the end of 2024.8 plan/ 9 Arab Times, Kuwait: Kuwait’s development plans revolve around efforts to create more job opportunities for nationals in the private Proposal seeks to sector. There is a plan to increase the percentage of Kuwaiti employees from 25 percent to 50 percent in private compa- double citizens in nies, and from 30 percent to 60 percent in the private oil companies.9 private sector, June 5, 2024, URL: https:// Oman: In 2022, a list of 207 jobs was announced as reserved for Omani citizens.10 In July 2024, new measures were www.arabtimesonline. introduced to enhance private sector employment for Omanis, by adding 30 new professions to the list of jobs reserved com/news/proposal- for them while also providing financial incentives to companies hiring locals.11 seeks-to-double- citizens-in-private- Qatar: The third National Development Strategy (NDS3), in alignment with Qatar National Vision 2030, supports the cre- sector/. ation of opportunities for employment and training for Qatari citizens and the nationalization of jobs in the private sector. 10 Oman. (2022). In September 2024, Qatar enacted a law to boost national workforce participation in the private sector. The initiative aims Ministerial Decision No. to harness a skilled Qatari talent pool while attracting highly skilled foreign talent.12 235/2022. URL: https:// qanoon.om/p/2022/ Saudi Arabia: Saudi Arabia has been increasing the number of Saudi nationals in the private sector through the Saudization mol20220235/ program, also known as the Saudi Nationalization Scheme. The program requires private sector companies to hire a certain percentage of Saudi nationals, depending on the company’s size, industry, and other factors. The Nitaqat program, an 11 Mogielnicki, R., initiative by Saudi Arabia’s Ministry of Human Resources and Social Development, complements the Saudization program The bread-and-butter by setting specific employment quotas for Saudi nationals. These quotas are based on company size, industry, and com- issues of jobs and pliance levels, categorized into bands (Red, Green, and Platinum). Key elements of the Nitaqat program include tailored taxes in the Gulf, Arab sector-based targets, incentives such as expedited visa processing for compliant companies, and penalties like hiring Gulf States Institute restrictions for non-compliance, making it a structured framework to enforce and enhance Saudization efforts effectively.13 in Washington, September 23, 2024, UAE: In May 2024, the cabinet approved an incentive package to boost Emirati participation in the private sector. Key URL: https://agsiw.org/ measures include an 80 percent reduction in service fees for businesses, an annual increase of 2 percent in Emiratization the-bread-and-butter- rates for companies with 50 or more employees until reaching 10 percent by 2026, and a requirement for companies with issues-of-jobs-and- 20 to 49 workers to hire at least one Emirati in 2024 and two by 2025. This initiative aims to create over 12,000 annual taxes-in-the-gulf/. job opportunities for Emiratis.14 12 The Ministry of Labour has spotlighted The progress has been modest so far in most GCC countries. Non-nationals continue to form the majority in the private Law No. (12) of 2024, sector in GCC, with divergence across the region. In Saudi Arabia, the share of Saudi employees has slightly risen from an https://www.qna. average of 20 percent in 2019 to 22.3 percent in 2023. Latest news indicate that the Saudi Arabia’s private sector had an org.qa/en/News%20 increase of 37,009 local employees in August 2024, a 6.9 percent rise from the 34,606 new hires in July, which is helping Area/News/2024- narrow the wage gap with expatriates.15 In contrast, Oman has witnessed a significant surge in its expatriate population, 09/01/0065-ministry- with the total number of expatriates working in the private sector reached 1,420,587 (77.4 percent of total private sector of-labour-highlights- jobs) at the end of September, compared to 413,964 Omanis.16 Recently, Oman has implemented a six-month ban on law-no-(12)-of-2024- issuing work permits for expatriates in 13 specific professions, aimed at promoting employment opportunities for Omani on-job-nationalization- nationals.17 Strong preference for public sector jobs due to higher compensations, shorter working hours disincentivized in-the-private-sector. nationals from seeking jobs in the private sector. 13 Ministry of Human Resources and Labor. While these incentives aim to boost local employment, they can create imbalances in the labor market that might https://www.hrsd.gov. hurt productivity. Moreover, these measures mainly encourage people to enter the job market but do not necessarily sa/en/knowledge- promote high performance or commitment once they are employed. These are important caveats to consider for labor centre/decisions- market reforms in the region. and-regulations/ regulation-and- procedures/832742 14 Emirates News Agency (WAM), UAE 15 National Labor Observatory, Saudi Arabia, Infographics, n.d., URL: https://nlo.gov.sa/landing/info-graphics?curent=1&Keywords=&c Cabinet increases =&oba=&obd=desc&lang=ar Emiratisation rate to 16 Zawya, Expatriate workforce in Oman reaches 1.8mln, September 2024, URL: https://www.zawya.com/en/economy/gcc/expatriate- 2% annually, May 9, workforce-in-oman-reaches-18mln-el7rdquk. 2022, URL: https:// www.wam.ae/en/ 17 Muscat Daily, Work visas stopped for select professions for 6 months, August 13, 2024, URL: https://www.muscatdaily. details/1395303045347. com/2024/08/13/work-visas-stopped-for-select-professions-for-6-months/ 20 chapter 1 GULF ECONOMIC UPDATE Chapter 02 Page 21 – 24 Spotlight Section Fiscal Policy Cyclicality in GCC The rationale behind countercyclical fiscal policy F iscal policy, meaning gov- hand, “countercyclical” policy that goes against ernment spending, tax plans the business cycle can help smooth out the and their execution, can be economy’s natural booms and bust cycles, and a powerful tool to stabi- consequently reduce vulnerability to exogenous lize the economy. However, shocks (Chari et al. 1994, Riera-Crichton et al. it can also have unintended 2015, Aizenman et al. 2019). Empirical evidence consequences. When fiscal shows that this contributes to more consistent policy is “procyclical” - meaning it expands growth over time (Woo 2009; World Bank 2024). spending and deficits when times are good or However, implementing effective countercy- does the opposite by pursuing austerity when clical fiscal policy requires understanding of times are bad - it can make economic ups and past trends and precise sources of cyclicality, downs worse, undermining both short-term so reforms can be pursued accordingly. stability and long-term growth. On the other 21 CHAPTER 2 GULF ECONOMIC UPDATE Fiscal policy cyclicality in GCC Over the past two decades, fiscal expendi- come and middle-income countries. This has tures and revenues in GCC countries were been partly attributed to stronger automatic mostly in line with countercyclical fiscal pol- stabilizers in high-income countries compared icy. Figure 15 presents correlation coefficients to low- and middle-income countries, but also between the cyclical components of real GDP to challenges arising from imperfect access to and fiscal expenditures and revenues across international credit markets, lack of financial 184 countries from 2000 to 2022, highlighting depth, and political distortions (Talvi & Vegh the six GCC countries. A countercyclical fiscal 2005, Alesina et al. 2008, Frankel et al. 2013, approach necessitates countercyclical expen- Bogetić & Naeher 2024b). diture (negative coefficient) and procyclical revenue (positive coefficient) relative to the Dynamic country experiences in GCC over business cycle. As Figure 15 shows, government the past two decades are mixed, with some expenditures were countercyclical in Oman GCC countries moving toward stronger (-0.06), Saudi Arabia (-0.33), Kuwait (-0.38), countercyclicality, and others moving away UAE (-0.45), and Bahrain (-0.48). Only Qatar from it. Figure 16 depicts the cyclicality of fiscal (+0.14) shows slightly procyclical expenditure. expenditures and revenues separately for the Government revenues were procyclical (as de- periods 2000-2011 and 2012-2022. Notably in sired) in all GCC countries: Qatar (+0.10), Oman Qatar, Kuwait, and Oman both expenditures (+0.16), Bahrain (+0.52), Kuwait (+0.53), UAE and revenues transitioned to be more in line (+0.63), and Saudi Arabia (+0.65). This is re- with countercyclical fiscal policy between these lated to the preponderance of volatile oil and two periods. Oman, in particular, has achieved gas revenues in these countries. this turnaround in the context of significant fiscal consolidation. The opposite was the case A general observation is that, in most coun- in UAE and Saudi Arabia, where expenditures tries in the world, revenues tend to be more and revenues became less in line with counter- strongly in line with countercyclical fiscal cyclical fiscal policy. In Bahrain, expenditure policy than expenditures. Apart from a few became slightly less countercyclical while the exceptions, most countries shown are located cyclicality of revenue moved into the desired above the zero-horizontal line for revenue in direction. Figure 15. This is consistent with the literature and is typically attributed to the existence of Overall, this underscores the relative good “automatic stabilizers” (such as progressive performance of the GCC countries in achiev- income tax and unemployment insurance), ing countercyclicality relative to other coun- whereby tax revenues tend to decrease during tries in the MENA region; yet challenges re- recessions and increase during economic main. Remaining challenges are evident by the booms (Talvi & Vegh 2005, Vegh & Vuletin fact that the GCC countries are less successful 2015, Bashar et al. 2017). By contrast, less than in achieving fiscal countercyclicality than most half of the countries in Figure 15 display coun- other countries with similarly high-income lev- tercyclical government expenditures, with a els, both on the expenditure and on the revenue clear pattern of stronger countercyclicality in side (see Figure 15). On the upside, this suggests richer nations (including GCC countries) and that there may be further potential in GCC to procyclical or neutral expenditures in low-in- move towards stronger countercyclicality. Policy that goes against the Countercyclical business cycle can help smooth out the economy’s natural booms and bust Fiscal Policy cycles, and consequently reduce vulnerability to exogenous shocks 22 CHAPTER 2 GULF ECONOMIC UPDATE FIGURE 15 Fiscal Policy Cyclicality in GCC Countries and the World, 2000-2022 1,0 Expenditure 1,0 Revenue SAU ARE Cyclicality of Fiscal Expenditure KWT Cyclicality of Fiscal Revenue 0,5 0,5 BHR QAT OMN QAT 0,0 0,0 OMN SAU KWT -0,5 BHR ARE -0,5 -1,0 -1,0 2,0 2,5 3,0 3,5 4,0 4,5 5,0 5,5 2,0 2,5 3,0 3,5 4,0 4,5 5,0 5,5 Log of real GDP per capita (constant 2015 US$) in 2000 Log of real GDP per capita (constant 2015 US$) in 2000 Note: Cyclicality is calculated as the correlation coefficient between the cyclical component of the Log of real GDP (constant LCU) and the cyclical component of the respective fiscal policy variable. A countercyclical fiscal approach necessitates countercyclical expenditure (negative coefficient) and procyclical revenue (positive coefficient) relative to the business cycle. The sample covers 184 countries. Source: Bank staff estimates using the methodology described in Bogetić & Naeher (2024), “Is Escaping the Fiscal Pro-Cyclicality Trap Possible? Evidence from the Middle East and North Africa” and data on general government revenue (percent of GDP) and general government total expenditure (percent of GDP) from the International Monetary Fund’s World Economic Outlook; data on real GDP (constant LCU) and real GDP per capita (constant 2015 US$) from the World Bank’s World Development Indicators. FIGURE 16 Cyclicality of Fiscal Policy Variables in GCC Countries, 2000-2011 vs. 2012-2022 2000-2011 2012-2022 2000-2011 2012-2022 1,0 Expenditure 1,0 Revenue Cyclicality of Fiscal Expenditure Cyclicality of Fiscal Revenue 0,5 0,5 0,0 0,0 -0,5 -0,5 -1,0 -1,0 it it es ain n bia es ain n bia a a wa wa Om Om ira ira Qa Qa Ara Ara h h K K B B di di bE bE Sa Sa Ara Ara d d ite ite U U Note: Cyclicality is calculated as the correlation coefficient between the cyclical component of the Log of real GDP (constant LCU) and the cyclical component of the respective fiscal policy variable. A countercyclical fiscal approach necessitates countercyclical expenditure (negative coefficient) and procyclical revenue (positive coefficient) relative to the business cycle. Source: Bank staff estimates using the methodology described in Bogetić & Naeher (2024), “Is Escaping the Fiscal Pro-Cyclicality Trap Possible? Evidence from the Middle East and North Africa” and data on general government revenue (percent of GDP) and general government total expenditure (percent of GDP) from the International Monetary Fund’s World Economic Outlook; data on real GDP (constant LCU) from the World Bank’s World Development Indicators. 23 CHAPTER 2 GULF ECONOMIC UPDATE Policies towards greater fiscal countercyclicality What can GCC countries do over the medi- fiscal rules that aim at current expenditures um- to longer term to achieve greater coun- being financed by government revenues (lim- tercyclicality of its fiscal policy? Achieving iting borrowing for capital expenditures only) countercyclical fiscal policy faces challenges, can help reduce fiscal policy volatility and allow including the structure of the tax system, tim- governments to respond to adverse shocks ing of policy decisions, fiscal space, external countercyclically by conserving fiscal space and domestic financing conditions, and other (Marioli et al. 2023). Third, some countries may political or external economic influences (Ale- need to mobilize more revenues to reduce sina et al. 2008, Frankel et al. 2013, Bogetić & the burden of fiscal deficit and public debt and Naeher 2024b). However, there are several mea- build buffers in preparation of expansionary sures available to enhance countercyclicality. fiscal policies during recessions, which is often First, automatic stabilizers like progressive a challenge due to unfavorable demographic income taxes (and unemployment benefits) and economic structures (IMF 2018, Bogetić may be considered in line with improvement et al. 2023) as well as institutions (Bogetić & in tax administrative and collection capacity, Naeher 2024c). Therefore, strengthening tax which would help limit economic overheating in collection administrations, eliminating costly good times and reducing slumps in bad times and regressive tax exemptions, and attracting (Bashar et al. 2017, Aizenman et al. 2019). Sec- private investments with improved investment ond, structural policies like exchange rate climate are crucial for revenue improvement flexibility, currency convertibility, and lifting (Djankov et al. 2010, Naeher & Narayanan 2023, restrictions on international trade and financial World Bank 2024). In addition, expenditure flows can help mitigate fiscal procyclicality, measures such as eliminating distortionary especially when supported by fiscal discipline subsidies (e.g., for fossil fuels) and investing in and well-designed fiscal rules, transparency, human capital and productive infrastructure and institutions ensuring the conservation of can enhance fiscal balances and stimulate eco- fiscal space (World Bank 2024). For example, nomic development (Ansar et al. 2016). 24 CHAPTER 2 GULF ECONOMIC UPDATE Chapter 03 Page 25 – 39 Outlook & Risks Global growth shows signs of stabilization despite geopolitical risks, while the MENA region faces an uneven recovery amid persistent energy market uncertainties. he global economy is sta- hold steady at 2.6 percent this year, unchanged T bilizing after two consecu- from 2023, before edging up to 2.7 percent in tive years of slowdown, as 2025-26, alongside modest expansions in trade inflation returns closer to and investment.19 However, the overall outlook targets and monetary easing remains subdued, with growth expected to re- supports economic activity main nearly half a percentage point below its globally. However, growth 2010-19 average. Escalating geopolitical ten- 18 Global Economic prospects are insufficient to offset the damage sions pose risks of volatile commodity prices, Prospects, January done to the global economy by several years while further trade fragmentation could dis- 2025 (Forthcoming) of successive negative shocks, with particu- rupt global trade networks. Global inflation 19 World Bank, Global larly adverse outcomes in the most vulnera- has eased from its 2022 peak but is declining Economic Prospects, ble countries.18 Global growth is projected to more slowly than expected. More persistent June 2024 25 CHAPTER 3 GULF ECONOMIC UPDATE inflation could lead to prolonged higher inter- es declined amid concerns over a weak global est rates, tightening financial conditions and economy and weaker-than-expected economic weakening global growth. Additional challenges performance in China, which is the world’s sec- could also arise from climate-related disasters ond largest consumer of oil. However, several and weaker-than-anticipated performance in factors present significant uncertainties to the key economies. energy market outlook. Notably, the ongoing conflict in the Middle East, centered in Gaza In the absence of major external shocks, and recently intensified through the military average oil prices in 2024 are expected to attacks between Iran and Israel, presents sig- experience a slight decline, with a further de- nificant downside risks. These heightened crease anticipated in 2025. Although OPEC+ geopolitical tensions risk disruptions to com- members have implemented cautious produc- mercial shipping routes in the Red Sea and a tion levels, oil prices are projected to slightly potential broader regional escalation threat- decline in 2024, averaging USD 80 per barrel, ens to disrupt energy supplies and drive-up oil before declining to USD 73 per barrel in 2025 prices. Other sources of uncertainty include (Figure 17). In September, OPEC+ extended the extent of OPEC+ members’ compliance their voluntary production cuts of 2.2 million with production quotas, the prospects for glob- barrels per day for an additional two months, al economic growth, and the resulting vola- through the end of November 2024, as oil pric- tility in world oil consumption and demand. FIGURE 17 Oil prices are projected to decline in the absence of major economic shocks Average Spot Crude Oil 84 82 80 78 USD per barrel 76 74 72 70 68 66 2023 2024 2025 2026 Source: Commodity Market Outlook; and WB Staff calculations. 26 CHAPTER 3 GULF ECONOMIC UPDATE Economic growth in the GCC is expected to accelerate in the medium term, led by a recovery in the hydrocarbon sector and ongoing progress on diversification. The GCC economy is expected grow by 1.6 the countries’ diversification plans and associ- percent in 2024, before accelerating over ated reforms. Looking ahead to 2025-2026, the 2025-2026, driven by higher oil output and overall growth across the region is expected to supported by a continued growth of the non- accelerate to an average of 4.2 percent in 2025- oil sector. The low growth in 2024 reflects the 2026 (Figure 18), reflecting the rolling back of impact of weak oil GDP which is estimated to crude production cuts by OPEC+ from Decem- 20 OPEC+ countries contract by 2 percent (y/y) in 2024, as Saudi ber 2024 onward. On the other hand, non-oil agreed on September Arabia, UAE, Kuwait, and Oman agreed to ex- GDP is expected to remain robust, albeit slower 2024, to extend the tend their additional voluntary OPEC+ output in 2025, as lower oil prices are prompting fiscal cuts of 3.66 mbpd by cuts until the end of November.20 However, the consolidation measures in most of the Gulf. The a year until the end of 2025 and prolong the robust growth in non-oil sector is mitigating non-oil sector is projected to be resilient in the voluntary cuts of 2.2 the overall impact of low oil output on overall medium-term supported by consumption and mbpd until the end of growth. The region’s non-oil GDP is estimated investment (Figure 19). November 2024. to grow by 3.7 percent (y/y) in 2024, driven by FIGURE 18 GDP growth projected to FIGURE 19 The increase in projected growth rebound, tracking oil sector driven primarily by exports and developments consumption Oil GDP Non-oil GDP RGDP Private Consumption Govt. Consumption Fixed Investment Net Exports 6 5 4 3 2 Contribution to growth, percent 1 Percent 0 -1 -2 -4 -3 -6 -5 2023 2024 2025 2026 2023 2024 2025 2026 Source: WB Staff calculations. Source: WB Staff calculations. 27 CHAPTER 3 GULF ECONOMIC UPDATE 3.3% Economic growth is expected to rebound UAE's estimated growth for 2024 2025, until it jumps to 4.1 percent in 2025-2026, 21 Kuwait’s in 2024 and to accelerate in 2025-2026 in primarily driven by increased gas production infrastructure most GCC countries, driven by continued capacity. The non-oil GDP sector is anticipated initiatives include a strong non-oil growth (Figure 20). Details to stay strong at 2.3 percent in 2024, supported KD 400 million (about of growth projections for individual countries by new infrastructure projects, expanding man- USD 1.3 billion) road maintenance program are given below: ufacturing sector, and rapidly growing tour- contracted in October ism industry. This momentum is anticipated 2024, a long-term LNG Bahrain: Growth is likely to improve in 2024 to strengthen further, reaching 3.4 percent supply agreement to reach 3.5 percent – from 3.0 percent in the growth in 2025-2026.The hydrocarbon sector signed in August 2024 previous year - driven by growth in a diverse is expected to remain at 1.5 percent in 2024 due between Qatar Energy and Kuwait Petroleum range of non-oil activity (3.5 percent), while to capacity constraints, but a significant boost Corporation to deliver the oil sector is expected to witness a partial is anticipated between Q4 2025 and 2027 with 3 million tons of LNG recovery in 2024 with a contraction of 1.0 per- the North Field expansion. annually starting in cent compared to a steeper contraction of 2.4 January 2025, and percent in the previous year. The recovery Saudi Arabia: Following the contraction of a power and water desalination plant is supported by higher oil production in the 0.8 percent in 2023, real GDP is expected to expansion contracted Abu Safah oilfield. Over 2025-2026, growth is grow by 1.1 percent in 2024, driven primarily in November 2024 projected to reach 3.3 percent in line with the by robust growth in non-oil activities of 4.6 valued at KD 118 increase in the oil sector output. percent, which will partially offset the expected million (USD 384 6.1 percent contraction in oil GDP. The con- million), alongside other projects under Kuwait: Economic growth is expected to con- traction in the oil sector is expected given the implementation. tract by 1 percent in 2024 (albeit narrower than extension of voluntary oil production cuts until Kuwait News Agency 2023), largely attributed to repeated extension the end of November-2024. Growth is expected (KUNA), Qatar agrees of voluntary OPEC+ output cuts but is projected to accelerate to an average of 4.7 percent in 15-year LNG supply to pick up over 2025-2026 to reach 2.6 percent 2025-2026 as oil production increases, while deal with Kuwait, August 26, 2024, URL: underpinned by rising oil output in addition the non-oil sector, critical to Saudi Arabia’s https://www.kuna. to an acceleration of infrastructure projects economic diversification agenda, is expected net.kw/ArticleDetails. in Kuwait.21 to stay steady at an estimated 4.5 percent in aspx?id=3189996 2025-2026. Reuters, Qatar strikes Oman: GDP growth is expected to decelerate in another 15-year LNG supply deal with 2024, also largely attributed to repeated exten- UAE: Economic growth is estimated to reach Kuwait, August 26, sion of voluntary OPEC+ output cut. However, 3.3 percent in 2024, driven by a sustained ex- 2024, URL: https://www. overall growth in is projected to pick up over pansion of 4.1 percent in non-oil sector. This reuters.com/business/ 2025-2026 to an average of 3.0 percent, also is underpinned by robust performance across energy/qatar-strikes- underpinned by rising oil output and ongo- multiple sectors notably tourism, real estate, another-15-year-lng- supply-deal-with- ing reforms and investment in non-oil sectors construction, transportation, and manufactur- kuwait-2024-08-26/ in Oman, setting the stage to higher non-oil ing. In the medium-term, overall GDP growth Reuters, November growth. is projected to accelerate to 4.1 percent in 12, 2024, URL: 2025 and 2026, supported by the recovery in https://www.reuters. Qatar: The economy is expected to strengthen oil production. com/ar/business/ MUF5TMPSMZPNXNT slightly to an average of 2.4 percent in 2024- KTZB5TA2HUY-2024 -11-12/ 28 CHAPTER 3 GULF ECONOMIC UPDATE FIGURE 20 Economic growth is expected to rebound in most GCC countries, helped by increase oil production and continued strong non-oil growth Oil GDP Non-oil GDP RGDP 15 10 5 Growth, percent 0 -5 -10 2022 2024 2026 2022 2024 2026 2022 2024 2026 2022 2024 2026 2022 2024 2026 2022 2024 2026 Sa di Arabia U ited Arab K wait Qa a Om n B h ain E ira es Source: WB Staff calculations. Regional inflation is likely to remain subdued compared to other regions. Inflationary pressures have eased in the rate cuts, and stronger economic growth may GCC region since 2022 and are expected to exert upward pressure on prices from stimu- remain well-contained in 2024, and in the lated demand, leading to an expected moderate medium term contained by several favor- rise in inflation by 2.2 percent. At the same able factors. Inflation is estimated to ease to time, generous subsidies, cap on fuel prices 2.1 percent in 2024, down from 2.2 percent in and strong local currencies that are mostly 2023 and 3.5 percent in 2022. This is mainly pegged to the U.S. dollar are expected to avert attributed to many factors including interest any significant rebound in inflation, and hence rate hikes, tighter monetary policies, generous is projected to remain contained at an average subsidies, decline in global food prices, and of 2.1 percent in 2026.23 Furthermore, in a con- the stabilizing effect of the currency peg to text of increasing housing prices in the GCC the U.S. dollar (Figure 21).Falling food prices countries, lower interest rates are expected and tight monetary conditions caused aver- to make mortgages and financing properties age inflation to decelerate in Kuwait, Qatar more affordable for consumers, boosting the and Saudi Arabia, while stronger growth in sector growth. It is also expected to boost credit housing prices pushed inflation rates up in (Figure 22), and reduce debt servicing costs, 22 BMI, September the UAE and Bahrain.22 In September 2024, among other things. Even prior to the recent 19, 2024. and following the decision made by US federal cut in policy rate, Saudi central bank showed 23 External factors reserve to cut its benchmark interest rate by the fastest pace of credit growth in the GCC such as the imported 50 basis points, most GCC central banks have during Q2 2024 of 3.1 percent (y/y), followed by inflation from main trading partners, decided to slash their interest rates in response, Oman, Kuwait and Qatar with a credit growth mainly China, could though the magnitude of the cuts varied across of around 1.0 percent. also drive domestic the region. In 2025, a combination of interest inflation in GCC. 29 CHAPTER 3 GULF ECONOMIC UPDATE FIGURE 21 GCC countries’ inflation FIGURE 22 GCC banks' credit growth is projected to remain contained at expected to be stimulated by relatively low levels lower interest rates. Euro Area USA World Domestic credit Inflation Middle East GCC 9 20 16 6 Percent Percent 12 3 8 4 0 0 K wait Sa di Om n U ited B h ain Qa a Arabia Arab 2022 2023 2024 2025 2026 E ira es Source: Economist Intelligence Unit, 2024; WB Macro-Poverty Source: WB Macro-Poverty Outlook, AM 2024; and Economist Outlook, AM 2024; and WB staff calculations. Intelligence Unit, 2024. Note: Domestic credit growth measured as percentage change in bank lending to public and private sectors, plus bank lending in domestic currency overseas. There is a projected increase in overall fiscal pressures in the GCC, but with significant variation across individual countries across the region. The regional fiscal surplus is expected to the combined fiscal balance for the GCC region turn into a small deficit in 2024 due to lower is projected to register a small deficit of 0.1 per- oil revenues following oil production cuts, cent of GDP in 2024, down from 0.6 percent of and to remain in deficit in 2025-2026. Despite GDP in 2023 (Figure 23). Over the 2025-2026 ongoing diversification efforts, hydrocarbon period, a slightly wider fiscal deficit of 0.2 per- revenues remain crucial in shaping the regional cent of GDP is projected on a combination of fiscal outlook for the GCC. The extension of lower oil revenues and higher expenditures OPEC+ oil production cuts through the end of across the region. Stepping up efforts to diver- 2025, coupled with relatively low oil prices, are sify revenue sources and implement fiscal con- expected to impact the fiscal account balances solidation will mitigate the impact of projected in GCC, and to remain significantly below the lower oil prices on the region’s fiscal balances. high levels experienced in 2022. As a result, 30 CHAPTER 3 GULF ECONOMIC UPDATE BOX 2 Tax Revenue Mobilization Efforts in the GCC – Progress to Date The sharp decline in oil prices that started in mid-2014 prompted a wave of tax reforms to bal- ance strained fiscal positions across the GCC and diversify revenue sources. Bahrain introduced VAT taxation in 2019 and doubled the rate to 10 percent (in 2022); in September 2024 the country also adopted domestic minimum top-up tax (DMTT) to levy a minimum 15 percent rate of tax on the profits of multinational enterprises effective January 1, 2025;24 Saudi Arabia introduced a VAT of 5 percent in 2018, and further increased the rate to 15 percent (effective July 2020). The government has also imple- mented excise taxes on tobacco, sugary drinks, and energy drinks, revised customs duties, and main- tained a 20 percent corporate income tax (CIT).In the UAE, federal CIT was introduced at a rate of 9 percent since July 2023. VAT was introduced in 2018 at a rate of 5 percent on most goods and services, but certain financial services, residential properties and local passenger transport are exempt. Excise tax is levied on specific goods that are harmful to human health or the environment, and municipal taxes are levied by individual Emirates on various activities, including property rentals and hotel stays. Mean- while, personal income tax on high earners in Oman was approved by Oman’s Majlis A’Shura in June 2024, which is currently being considered by the State Council, making it the first GCC state to intro- duce personal income taxation (in addition to 5 percent VAT adopted in 2021). In 2023, Qatar enacted Law No. 11 of 2022, amending the Income Tax Law No. 24 of 2018, to expand the scope of taxable income, revise exemptions, enhance compliance measures, and introduce economic substance requirements, aligning its fiscal framework with international standards.25 Progress in revenue diversification for Ku- wait, however, lags their GCC peers. Individual country fiscal balance outlook cit. However, limited spending growth un- will diverge in 2024, with Saudi Arabia, der the Fiscal Balance Program (FBP) and 24 With global Kuwait, and Bahrain expected to run fiscal higher oil revenues are expected to narrow revenue exceeding deficits, while the rest will maintain sur- the fiscal deficit by 2.6 percentage point of €750 (US$828 million). pluses (Figure 24). Details of the fiscal sec- GDP in 2024, down from10.4 in the previous 25 General Tax tor for individual countries are given below: year. The deficit is projected to be 7.4 per- Authority. Amending cent in 2025, before slightly accelerating to Several Provisions of • Fiscal pressures for Saudi Arabia, Ku- 7.7 percent in 2026 in line with lower pro- Income Tax Law. 2023. wait and Bahrain: Saudi Arabia is esti- jected oil prices. 26 Aramco has mated to have a fiscal deficit of 2.9 percent reported a 3.4 percent of GDP in 2024 sustained by increased gov- • Stable fiscal surpluses in UAE, Oman fall in Q2 2024 profit ernment spending. The deficit is to stay at and Qatar: UAE’s Estimated fiscal sur- on lower crude these elevated levels over the period 2025- pluses are projected to remain stable at volumes and softer 2026 (2.2 and 2.8 percent of GDP). Aramco 4.9, 4.7, and 4.5 percent of GDP in 2024, refining margins, yet kept its generous performance-linked dividends (US$108 bil- 2025, and 2026, respectively, supported dividend at US$31.1 lion in Q2 2024) will contribute to enhance by the expansion of non-oil revenues and billion in payouts, fiscal revenues and thereby put a lid on a broader tax base. Qatar is estimated to including US$10.8 larger potential fiscal deficit.26 The fiscal have an increasing fiscal surplus projected billion in performance- deficit in Kuwait is expected to be 5.8 per- to increase from 4.2 percent in 2024 to 6.0 linked payouts (US$29.03 billion net cent of GDP in 2024 and widen to 8.1 and 7.9 percent of GDP in 2026. The long-delayed income). See, https:// percent of GDP in 2025, 2026 respectively implementation of value-added tax (VAT), www.aramco.com/ / due to expansionary fiscal stance. There is anticipated in 2025, can help further sup- media/publications/ an absence of additional fiscal consolida- port the fiscal sector. Finally, Oman’s in- corporate-reports/ tion to increase non-oil revenue and tackle creased non-hydrocarbon receipts, and reports-and- presentations/2024/ current spending rigidities. Lower energy prudent fiscal discipline are expected to h1/saudi-aramco-h1- prices and continued high interest burden keep fiscal balance in surplus from 2024- 2024-interim-report- will keep fiscal balance for Bahrain in defi- 2026, averaging 4.1 percent of GDP. english.pdf 31 CHAPTER 3 GULF ECONOMIC UPDATE FIGURE 23 The GCC fiscal surplus is FIGURE 24 There is significant divergence projected to turn into a deficit in individual countries’ in 2024, and to remain on positions deficit in the medium term Fiscal Balance (rhs) 15 General Goverment Revenue (lhs) 10 General Goverment Expenditure (lhs) Percent of GDP 40 20 5 30 15 0 Growth, Percent Percent of GDP 20 10 –5 10 5 –10 0 0 –15 2026 2026 2026 2026 2026 2026 2022 2022 2022 2022 2022 2022 2024 2024 2024 2024 2024 2024 –10 –5 –20 –10 Sa di UAE K wait Qa a Om n B h ain 2022 2023 2024 2025 2026 Arabia Source: WB Macro-Poverty Outlook, AM 2024. Source: WB Macro-Poverty Outlook, AM 2024. The GCC fiscal position is expected to lead tainability in Oman has improved markedly to divergent trends in debt-to-GDP ratios supported by sizable fiscal adjustment and in individual countries (Figure 25). Lower continued debt repayment, the government interest rates will also drive stronger growth debt outlook remains vulnerable to risks, par- in non-oil sectors and reduce debt servicing ticularly from oil market developments. costs across the region. This will especially benefit Bahrain, with the highest debt ratio Total GCC Sovereign Wealth Funds (SWFs) among GCC. However, oil price volatility and assets stood at US$ 4.1 trillion in 2023 with contingent liabilities from SOEs (or govern- investments of US$ 55 billion till Q3 2024, ment-related entities), will remain the main highlighting adequate fiscal buffers. Latest 27 Global SWF, Sovereign Wealth sources of vulnerability, highlighting risks to reports indicate that GCC SWFs deployed Funds and Public debt sustainability in the absence of addition- USD 55 billion in capital in the first nine Pension Funds Data al fiscal consolidation over the medium-term. months of 2024 across 126 different transac- Platform, n.d., URL: Budgetary financing needs will grow in Saudi tions.27 As the rise in international oil prices https://globalswf. Arabia in 2024, with the debt-to-GDP ratio over the years has contributed to increase the com/ Economy Middle East, GCC sovereign expected to rise to 28.7 percent, and to remain investment of GCC SWFs, these funds played wealth funds deploy elevated in the medium term. In Bahrain, ab- a central role in reducing reliance on oil by de- $55 billion in first sent additional fiscal reforms, declining oil veloping new industries in technology, tour- 9 months of 2024: prices will keep the debt-to-GDP high in 2024 ism, and renewable energy.  The SWFs have Report, October 1, (128 percent) and increasing thereafter (de- supported the economic diversification strat- 2024, URL: https:// economymiddleeast. spite a noticeable decline in 2022), requiring egies undertook by the GCC countries, bring- com/news/ deeper fiscal consolidation measures to put ing an additional source of fiscal buffers. With gcc-sovereign- the debt on a firm downward trend. Addi- US$ 7.6 trillion in assets28 expected by 2030 wealth-funds- tionally, the implementation of fiscal revenue (Figure 26), the ample funds can help insulate deploy-55-billion-in- reforms and active debt management strate- the economy from commodity price volatility first-9-months/ gies in the UAE are expected to enhance over- and external shocks, and provide resourc- 28 2024 Annual all fiscal sustainability. Although debt sus- es for long-term investments, among other. Report, globalswf.com 32 CHAPTER 3 GULF ECONOMIC UPDATE FIGURE 25 The overall debt-to-GDP ratio FIGURE 26 Large fiscal buffers through the projected to increase, but there regional SWFs expected to insulate is significant regional variation economy from external shocks 8 Government Debt GCC Debt-to-GDP Average 7.6 140 7 120 6 100 5 4.9 80 4.1 US$ trillion Percent oF GDP 4 3.7 3.8 60 3.1 3 40 20 2 0 1 2024 2026 2024 2026 2024 2026 2024 2026 2024 2026 2024 2026 0 B h ain Om n Qa a UAE Sa di K wait 2020 2021 2022 2023 2025 2030 Arabia Source: WB Macro-Poverty Outlook, AM 2024. Source: Global SWF Data Platform and Projections. The regional external balance surplus is expected to decline in 2024 compared to 2023 but increase in the medium-term, driven by an increase in hydrocarbon exports. The regional external balance surplus is Bahrain: The current account surplus will expected to narrow before expanding in also likely increase to 7.3 percent of GDP the medium term. The current account sur- in 2024 helped by higher non-oil exports plus is expected to narrow to 7.1 percent of volume, but to narrow in 2025-2026 in line GDP in 2024, mainly reflecting lower ener- with oil price outlook. gy exports (Figure 27). In 2025-2026, strong performance of service exports across most Kuwait: Narrowing current account sur- GCC will provide support to the external sec- plus at 21.6 percent of GDP in 2024 affect- tor, widening the external balance surplus to ed by lower oil exports. Estimated further 8 percent of GDP over 2025-2026 (Figure 28). decline in the current account balance in 2025-2026, as the uptick in oil produc- There is significant divergence in individu- tion fails to completely offset the decline al country outlooks for the external sector. in prices. Key highlights of the external sector of indi- vidual countries are given below: 33 CHAPTER 3 GULF ECONOMIC UPDATE Oman: There is an estimated increase in Saudi Arabia: The current account sur- the current account surplus in 2024 to 1.7 plus is estimated expected to narrow to 2.5 percent of GDP, and to further increase in percent of GDP in 2024 mainly reflecting 2025-2026 supported by increased nonhy- lower oil exports and a strong growth in in- drocarbon exports. vestment-related imports. There is also a projected increase to an average of 5.1 per- Qatar: The current account surplus in is cent over 2025-2026 due to rising non-oil expected to narrow to 14.5 percent of GDP exports and increase in tourism receipts. in 2014 but should remain robust at an es- timated of 14.8 percent over 2025-2026 UAE: There is an anticipated decrease in buoyed by strong energy and services the current account surplus from 9.2 per- (tourism) exports. cent in 2023 to 7.5 percent of GDP in 2024, and to an average 7.3 percent in 2025-206, despite continued efforts to increase non- oil exports. FIGURE 27 Current balance surplus is FIGURE 28 ...tracking the developments in expected to narrow before oil market. expanding in the medium term… Current Account Balance (rhs) Merchandise Trade Primary & Secondary Income Export (lhs) Services Trade Current Account Balance Import (lhs) 20 20 40 30 15 15 20 Growth, Percent Percent of GDP Percent of GDP 10 10 10 0 –10 5 5 –20 –30 0 0 –40 2025 2025 2025 2025 2025 2025 2026 2026 2026 2026 2026 2026 2024 2024 2024 2024 2024 –5 –5 2024 2022 2023 2024 2025 2026 Sa di U ited K wait Qa a Om n B h ain Arabia E ira es Arab Source: WB Macro-Poverty Outlook, AM 2024. Source: WB Macro-Poverty Outlook, AM 2024. 1.7% Oman's estimated increase in the current account surplus in 2024 34 CHAPTER 3 GULF ECONOMIC UPDATE The region faces downside risks from escalating Middle East conflicts, OPEC+ production cuts, a sluggish recovery in China, and global decarbonization efforts. The uncertain regional context of the on- higher-risk regions. Although GCC banking going Middle East conflict heightens the systems have shown resilience under past risk of broader regional spillovers with geopolitical stress, sustained uncertainty substantial economic consequences. could weaken non-oil sector growth in the Heightened geopolitical tensions can sig- GCC as businesses and consumers adjust to nificantly dampen growth prospects by in- an elevated risk environment. Additionally, creasing uncertainty, undermining business the Red Sea shipping crisis, driven by Houthi and consumer confidence, curbing tourism, attacks and geopolitical tensions, has dis- triggering capital outflows, and tightening rupted global trade routes, impacting the financial conditions. Historical data shows Gulf States’ oil and gas exports, maritime that during periods of intense regional con- traffic, and investment flows, while prompt- flict, countries in the Middle East have expe- ing a shift to land transport (see Box 3). In- rienced a decline of about 2 percent in real tensification of this crisis poses further risks 29 International GDP per capita within a year of conflict on- to economic growth. However, an escalation Monetary Fund, Regional economic set, with losses reaching around 10 percent of the conflict in the region could lead to oil outlook Chapter 2, over a decade.29 Additionally, investor behav- supply disruptions affecting global oil prices, April 2024 ior tends to shift toward safer assets during which could result a windfall for the region. 30 While the such periods, leading to capital outflows from Yemeni group has vowed to target only vessels bound for and BOX 3 The Impact of the Red Sea Shipping Crisis on affiliated with Israel, the Gulf States and—following the British and US military strikes—vessels from The Red Sea, a vital maritime artery, is currently facing a shipping crisis of unprecedented scale. The Red Sea the latter nations as is channeling 30 percent of global container traffic, 12 percent of the world’s oil, and 8 percent of liquefied natural gas well, many vessels with (LNG) shipments. Since November 2023, Yemen-based Houthis have been conducting missile and drone attacks against no connection to the commercial vessels in the Gulf of Aden and southern Red Sea.30 Security threats in the Red Sea have compelled ships on stated targets have the Asia-Europe and Asia-Atlantic trade lanes to be rerouted around Africa’s Cape of Good Hope, greatly extending travel also been struck. distances and times. In the wake of these disruptions, the once-thriving maritime passage, prized for its role as the most ex- pedient link between Asia and Europe, has witnessed a precipitous drop in vessel traffic. As of September 2024, the volume 31 Emily Chow of traffic through the strategic Suez Canal and Bab El-Mandeb Strait has dropped by three-fourths relative to historical and Marwa Rashad, norms, while the alternative route via the Cape of Good Hope route has witnessed an increase in navigation by over 50 “Tankers carrying percent (Figure 29, A). Qatari LNG change The disruption of Red Sea trade routes has primarily affected the Gulf States’ oil and gas exports to Europe. Since course amid Red Sea January 2024, Qatar, the world’s second-largest exporter of LNG, has suspended its LNG shipments via the Red Sea, forcing tension -data”, https:// a longer route around the Cape of Good Hope, which adds approximately nine days to the journey to Europe.31 Saudi Arabia, www.reuters.com/ which has the longest coastline along the Red Sea, relies on its ports there as vital trade hubs. Since the start of the crisis, markets/commodities/ most shipping companies handling Saudi oil have rerouted vessels around the Cape of Good Hope to reach European mar- lng-tankers-carrying- kets, bypassing the Suez Canal.32 In July 2024, following attacks by Houthi forces on two Saudi ships, the country announced qatari-lng-resume- that it would cease oil shipments through the Red Sea. course-data- The Red Sea shipping crisis has had a profound impact on the regional supply chain, particularly for GCC countries, shows-2024-01-16/ because of their proximity to the conflict’s center. The Strait of Hormuz, the world’s most critical oil passageway and a 32 IntelliNews, “Oil chokepoint between the Arabian Gulf and the Gulf of Oman, has experienced approximately a 15 percent decrease in traffic volume compared to the pre-conflict baseline of January to September 2023 (Figure 29, A). Additionally, delayed container shipments from Saudi shipping capacity of the ports of the Gulf States, especially in Oman, the UAE, and Saudi Arabia, has dramatically increased Arabia and Iraq to since the start of the crisis, reflecting the strain on the supply chain (Figure 29,B). Europe delayed amid Red Sea tensions”, The conflict in the Middle East and the ensuing Red Sea shipping crisis have led to a sharp decline in mari- https://www.intellinews. time shipping and trade across GCC countries. From October 2023 to August 2024, shipping volumes across all com/oil-shipments- GCC nations fell significantly compared to the baseline period of January 2022 to September 2023. Saudi Arabia and from-saudi-arabia- Oman saw the steepest export declines, with drops of 29 percent and 31 percent, respectively, while Qatar experi- and-iraq-to-europe- enced the largest import decline at 30 percent (Figure 29, C). Nearly all of the top 15 GCC ports recorded notable drops in both imports delayed-amid-red-sea- tensions-308609/ 35 CHAPTER 3 GULF ECONOMIC UPDATE and exports as opposed to their pre-crisis levels, with trade volumes decreasing by an average of 17 percent (Figure 29, D). Nevertheless, Saudi Arabia’s King Fahd Port has bucked the trend, showing positive growth. Its location, well north of Houthi-controlled Yemeni territory, has likely allowed it to continue sending cargo through the Suez Canal to Europe and beyond without disruption. The Red Sea shipping crisis has also affected the Gulf States through investment channels. The UAE has invested heavily in port infrastructure in the Red Sea basin and the Horn of Africa, notably through Dubai Ports (DP) World.33 Attacks have disrupted the flow of commercial traffic through Red Sea ports, some operated by DP World, resulting in a 59 percent drop in the company’s net profit in the first half of 2024.34 The crisis has also financially affected Saudi Arabia, which has heavily invested in developing Jeddah as a tourist and commercial hub on the Red Sea’s east coast. FIGURE 29 A-D. The Red Sea crisis forced many vessels to divert from their original routes, straining the supply chains of GCC countries and causing a decline in maritime shipping across the region AIS transit volume at key maritime chokepoints A (percentage change from the historical average between Jan 2022 to Sep 2023) Bab el-Mandeb Strait Cape of Good Hope Strait of Hormuz Suez Canal 140% Middle East Red Sea Crisis 120% Conflict 100% 80% 60% 40% 20% 0% –20% –40% –60% –80% –100% 2023/11 2024/01 2023/01 2024/07 2023/07 2024/03 2024/05 2024/09 2023/03 2023/05 2023/09 The World Bank supply chain stress index, ports of GCC countries B (Millions of 20-foot equivalent units (TEUs)) Bahrain Qatar Oman Kuwait Saudi Arbia United Emirates Arab Middle East Red Sea Crisis Conflict 200 150 33 Azure, “UAE 100 and KSA: Growth and influence along Red Sea”, https:// 50 azure-strategy.com/ uae-and-ksa-ramp- 0 up-port-investments- along-red-sea/ 2022/01 2022/03 2022/05 2022/07 2022/09 2022/11 2023/01 2023/03 2023/05 2023/07 2023/09 2023/11 2024/01 2024/03 2024/05 2024/07 34 DP World. (2024). 2024 Financial Report. 36 CHAPTER 3 GULF ECONOMIC UPDATE Shipping volume in GCC countries C (percentage change from Oct 2023 to Aug 2024, compared to Jan 2022 to Sep 2023) Imports Exports U ited Sa di Arab B h ain K wait Om n Qa a Arabia E ira es 0% -5% -10% -15% -20% -25% -30% -35% Shipping volume at the top 15 GCC ports D (percentage change from Oct 2023 to Aug 2024, compared to Jan 2022 to Sep 2023) -50% -60% -30% -40% -80% -20% -70% -10% 20% 10% 0% B h ain Sitrah K wait Mina Al Ahmadi Om n Port of Sohar Salalah Qa a Ras Laffan Doha-Umm Said Sa di Juaymah Arabia Jubail King Fahd Port Ras Tanura Al Fujayrah U ited Jabal Az Zannah-Ruways Arab E ira es Jebel Ali Das Island Mina Saqr Source: IMF Portwatch, https://portwatch.imf.org/; World Bank Group Global Supply Chain Stress Index, https://documents.worldbank. org/en/publication/documents-reports/documentdetail/099746107032431443/idu19447dab513757140b1193cd19643f0ab7c10; World Bank staff estimates. Note: A. The lines represent the 7-day moving average percentage change in daily capacity of ships passing through key chokepoints, compared to its historical daily average since January 1, 2022. The two vertical lines mark the onset of the Middle East conflict and the Red Sea crisis. B. The lines show the shipping capacity under stress in GCC countries by aggregating the obstructed shipping capacity of their ports. This is estimated as the difference between current data and the monthly median from January 2016 to April 2024. For further details, please refer to the WBG working paper A Metric of Global Maritime Supply Chain Disruptions. C. The histograms display changes in the shipping import and export capacity of GCC countries, comparing the monthly average from September 2023 to August 2024 with data from January 2022 to September 2023. D. The histogram shows changes in aggregated import and export shipping capacity for the top 15 ports in GCC countries, comparing the monthly average from September 2023 to August 2024 with data from January 2022 to September 2023. 37 CHAPTER 3 GULF ECONOMIC UPDATE At the same time, the scope and duration of the crisis has prompted inter-modal transport adjustment from mar- itime shipping towards land transport of cargo across the Arabian Peninsula. While the disruption of the cheapest means of transportation remains a significant challenge, the availability of alternatives such as land corridors has ensured that transport has not shut down entirely for the UAE and Saudi Arabia. The shipping companies have increasingly opted to move cargo using the land corridors from Dubai to Jeddah and, to a lesser extent, from Dubai to Haifa,35 despite higher costs and logistical complexities compared to pre-crisis maritime transport. Decisions by OPEC+ to extend or deepen demand, reducing oil GDP and revenues in voluntary cuts could dampen recovery the GCC. This impact is more significant to- and weaken fiscal and external positions. day than a decade ago, given the increased In October, OPEC+ members led by Saudi exposure of GCC economies to China. As the Arabia and Russia agreed to extend their world’s second-largest oil consumer, China additional voluntary production cuts of 2.2 sources nearly 30 percent of its crude oil im- million barrels per day for two months until ports from five of the GCC countries in 2023 the end of November 2024, following a drop (Figure 30). Additionally, weaker growth in 35 Middle East in crude prices to a nine-month low. Further China could directly affect GCC non-oil GDP Institute, “The Houthi- adjustments, including pausing or reversing due to stronger non-oil linkages. A negative UAE collision course production increases, remain possible. This, growth shock in China would adversely im- in the Red Sea”, https://www.mei.edu/ in turn, would lead to lower government rev- pact GCC non-oil growth in both the short and publications/houthi- enues, potentially widening fiscal deficits. medium term. Specifically, it is estimated that uae-collision-course- Additionally, lower export volumes would a 1 percentage point decline in China’s growth red-sea reduce foreign exchange earnings, weaken- is estimated to reduce GCC non-oil output by 36 Y. Korniyenko ing external balances. Consequently, these 0.24 percent in the same year as the shock and et al, 2023, “Gulf factors could impede economic recovery. by 0.57 percent over the medium term (four Cooperation years).36 Furthermore, the persistent fragility Council: Economic A weaker-than-expected recovery in Chi- in the Chinese real estate market could pose Prospects and Policy Challenges for the na would have significant cross-border a larger-than-expected drag on growth and GCC Countries”. IMF effects. A slowdown in China’s growth would potentially lead to financial stability risks. Country Report No. exert downward pressure on oil prices and 2023/413. FIGURE 30 China sources nearly 30 percent of FIGURE 31 The U.S. economy has shown its crude oil imports from five of resilience in 2024, with higher the GCC countries in 2023 contributions to global growth Oman Kuwait Rest of Countries Qatar Saudi Arabia United Arab Emirates 2010-19 average 2024f 1.2 Percent of China’s crude oil imports 10.7 1.0 0.8 6.6 Percentage 0.6 5.5 0.4 3.8 70.2 0.2 3.2 0.0 United Euro China Other Other States area AEs EMDEs Source: International Trade Centre. Source: Global Economic Prospects, June 2024. 38 CHAPTER 3 GULF ECONOMIC UPDATE The region faces medium-term risks from tively pursuing partnerships and initiatives. a growing pressure for climate transition, For instance, Saudi Arabia plans to produce particularly disruptions in fossil fuel trade 650 tons of hydrogen per day by 202538, while as the global economy shifts to net-zero Oman targets 1 million tons of green hydro- emissions. The uncertainty surrounding fu- gen output by 2030. Additionally, the UAE is ture oil prices, driven by factors such as the playing a critical role in advancing green tech- global shift towards low-carbon consump- nology. The Abu Dhabi National Oil Company, tion, adds complexity to the macroeconomic for example, has been aggressively investing outlook. Accelerated global decarbonization in decarbonization initiatives, including car- efforts could further strain GCC financial sys- bon capture and storage, renewable ener- tems, weakening asset quality and increas- gy partnerships, and innovative hydrogen ing the risk of stranded assets. At the same projects. This expansion into green sectors time, the GCC faces significant challenges could help capitalize on the region’s compet- in advancing its own energy transition. The itive advantage in renewable energy poten- region has some of the world’s highest per tial and support economic diversification. capita emissions—ranging from 1.5 to 4 times the global average—further highlighting the A potential upside risk to the region’s urgency of transitioning towards a green- growth outlook is stronger-than-expected er economy. As of now, the GCC is home to economic growth in the United States. The only three major carbon capture and storage U.S. economy has shown resilience, driven by (CCS) facilities, which together account for robust domestic demand and a stable labor approximately 10 percent of global CO₂ cap- market, despite tight monetary policy (Fig- ture annually.37 This limited scale underscores ure 31). Stronger U.S. growth could lead to the significant gap between current actions increased global energy demand, benefiting and the requirements for achieving net-zero GCC countries by driving up oil prices. This, 37 A. Al-Sarihi, 2023, commitments by mid-century. To address in turn, would allow the GCC to expand oil “The GCC and the road these challenges, the GCC should prioritize production, particularly after the anticipat- to net zero”. Middle strengthening macroeconomic buffers, di- ed lifting of OPEC+ production cuts at the East Institute. versifying economies, and reducing reliance end of 2025. Additionally, improved global 38 “Hydrogen to on extractive industries. The growth of the investor sentiment resulting from U.S. eco- Play a Central Role in green economy presents an opportunity for nomic growth could lead to greater capital Saudi Arabia’s Energy Transition,” German- the GCC to leverage its energy infrastructure inflows, further supporting economic recov- Saudi Arabian Liaison and expertise, particularly in solar and hydro- ery and diversification efforts in the GCC. Office for Economic gen production, where the region has been ac- Affairs (AHK) 39 CHAPTER 3 GULF ECONOMIC UPDATE Chapter 04 Page 40 – 77 Special Focus: Water Security and Climate Uncertainty in Gulf Cooperation Council (GCC) countries PART I Water Scarcity and Thirsty Economies Why Water Matters for Economic 39 Water stress is a condition in Growth and Development? which water demand and supply are not “cleared” (or diverge) W ater is essential to life, pro- ecosystems, destabilizing the delicate balance because of different duction, and ecosystems. needed to sustain life. water risks. These risks However, global water scar- include uncontrolled city poses a critical challenge As water stress intensifies, communities increase in demand (Allegretti et al to human development and face challenges to meet their water needs 2022), water scarcity the achievement of the Sus- due to insufficient supplies or inadequate (UNESCO 2023), water tainable Development Goals infrastructure. Currently, billions of people abundance when (SDGs). Water is also central to reducing eco- experience water stress, with the poorest pop- floods hit (Yadav and logical and climate risks, which now threaten ulations bearing the greatest risks (CFR 2023). Ibrar 2023)—often leading to increasing the stability of civilizations that have thrived Such conditions heighten the risk of poverty, concentrations of for thousands of years (Wang-Erlandsson et creating a “poverty trap”, where individuals minerals and salts that al. 2022). Climate change, for example, will remain impoverished due to water-related are expensive to treat likely worsen global water stress39, as rising challenges. This perpetuation of poverty ex- or can even make the temperatures increase the frequency and se- acerbates global socioeconomic inequality, as water unusable—, or water pollution that verity of extreme weather events, including those without such risks can achieve faster restricts water use and floods and droughts (United Nations 2021). economic growth (Barrett et al. 2018). consumption (van Vliet These events disturb the water balance and et al., 2017). 40 CHAPTER 4 GULF ECONOMIC UPDATE In addition to the human toll, inefficient availability, significantly hampers economic water usage and poor water and sanitation growth. For instance, consecutive years of be- service delivery incur substantial econom- low-average runoff can reduce local economic ic costs. These issues undermine long-term growth by up to 2.5 percent annually due to human capital, reduce productivity, and slow impacts on agriculture and hydropower (Russ inclusive economic growth. Recent estimates 2020). In regions with high water scarcity, such value the global economic and environmental as parts of Africa, Northeast Asia, and the Mid- contributions of water at $58 trillion, with con- dle East, growth rates could decline by up to 6 sumptive uses in households, agriculture, and percent of GDP by 2050 due to water-related industry accounting for $7 trillion. Biodiversity impacts on agriculture, health, and income and environmental benefits add up to $39 tril- (World Bank 2016). Erratic rainfall also disrupts lion. However, inefficiencies in consumptive food production. This affects the supply of food water use alone cost $3.2 trillion, or 45 percent needed to feed around 81 million people each of consumptive use value (WWF 2023). year (Damania et al. 2017). Extreme droughts on the other hand have reduced per capita GDP Research indicates that persistent water growth by nearly 1 percent annually (Zavery, scarcity, as measured by declining water Damania, and Engle 2023). BOX 4 Assessing Water Security Impacts on Poverty and Inequality To evaluate water security risks around the World, the World Bank conducted Water Security Diagnostics in around 12+ countries. Such analyses identify various types of water shocks, showing the increasing importance of investing in reliable and resilient infrastructure and preserving water resources. For instance, erratic water flows for hydropower generation in Argentina — the second larg- est electricity source — is at risk of losing 0.2 percent of the gross domestic product (GDP) per year. In another example, in Moldova, water risks in the form of floods cause damages of estimated at US$100 million annually (0.2 percent of GDP). In Peru and Colombia production shocks due to water risks represent around 1.2 percent of GDP losses. In Vietnam, the diagnostic found that water quality risks affect agricultural, fisheries, and water shortages of utilities that accrue to 4.3 percent of GDP annually. Globally, the World Bank estimated the costs of water pollution under a water security framework: when surface water bodies have pollutants in high excess, such as Biological Oxygen Demand (BOD), the GDP growth in those areas is only a third (0.82 percent) compared to the GDP growth areas without those pollutants (2.33 percent), but with similar characteristics (Damania et al 2019). In 2017, the World Bank made its first effort to understand the relationship between access to water and sanitation services and poverty through the WASH Poverty Diagnostic Initiative (World Bank 2017).40 Consistently, in all countries where the analysis was done, the interplay between poverty and water and sanitation access not only highlighted geographic areas of need (that is, where poverty rates are high and access low) but also helped identify potential “islands of effectiveness” (that is, where 40 Water and access rates are high despite high income poverty). Among many social, economic, and geographical sanitation services factors, wealth was found to be the most important determinant globally of accessing these basic ser- indicators and vices. A stark finding to all countries showed that access gaps in water and sanitation services not only income poverty were explain gaps in child’s health, but also on gaps in food security and health care. overlaid and spatially represented in more than 18 countries around the World. 41 CHAPTER 4 GULF ECONOMIC UPDATE The importance of drought resilience of limited access to quality infrastructure. With water services population growth and rising temperatures, water stress is expected to increase, making Strengthening the resilience and reliability arid regions more vulnerable. Given that water of water services is crucial to mitigating eco- is essential for agriculture, energy generation, nomic and social costs. Disruptions in water public health, environmental conservation, and sanitation infrastructure due to climate and economic stability, declining water avail- impacts are estimated to cost $6 billion per year ability especially threatens food and energy (Hallegatte et al. 2019). The poor are particu- security globally. larly affected by unreliable water services and Water scarcity and Thirsty Sectors (GCC and Global Benchmarks) The GCC countries and the Middle East and Annual freshwater consumption in the GCC North Africa (MENA) region are projected is expected to reach 33.7 billion cubic meters, to experience the highest levels of water exceeding projected storage by nearly 8 bil- stress globally (Figure 32). GCC countries, lion cubic meters. The region’s population, facing limited surface water and unsustain- currently around 50 million, is projected to able groundwater use, are among the most wa- increase by 14 million by 2050, further esca- ter-scarce nations in the world. The threshold lating water demand. Four of the 17 countries for absolute water scarcity is 500 cubic meters worldwide facing “extreme high water stress” of renewable freshwater per person annually, (where at least 80 percent of available sur- yet many of these countries have access to less face and groundwater is consumed annually) than 100 cubic meters per capita annually. De- are in the GCC: Qatar, Kuwait, Saudi Arabia, spite this, per capita water consumption in the and the UAE. GCC averages around 550 liters per day (200 cubic meters per person per year). FIGURE 32 Projected exposure to water stress by 2050 Source: AQUEDUCT 4, World Resources Institute (2024) 42 CHAPTER 4 GULF ECONOMIC UPDATE Naturally arid, the GCC countries are in- groundwater quality but also depletes reserves, creasingly affected by groundwater deple- exacerbating water scarcity. Although treated tion and rising global temperatures, further wastewater could be a valuable resource, much diminishing its water supplies. Studies indi- of it remains underutilized, with desalination cate that from 1979 to 2019, GCC cities such as being the main source of water supply. Subsi- Manama and Dubai (Figure 33) experienced dized water prices mean that consumers pay far annual temperature increases of 1.0 to 2.4°C, less than the actual cost of water production, compared to the global average increase of 0.8 and groundwater pumping for irrigation is of- to 1.4°C (Odnoletkova and Patzek 2022). ten unmonitored or uncontrolled (Sherif et al. 2023). Effective groundwater storage solutions The GCC is a global hotspot for unsustain- could help meet additional water needs while able groundwater abstraction, with ground- promoting sustainable water management. As water pumping exceeding natural recharge irrigation expands in GCC countries concrete rates, particularly for agricultural use (see plans for sustainable use of water must accom- Table 1). This over-extraction not only degrades pany those interventions. Temperature increases of GCC cities and global and FIGURE 33 northern hemisphere averages 1979-2019 Annual mean Summer mean Summer max Global Land Northern Hemisphere Land Temperature, °C +5.0 +4.0 +3.0 +2.0 +1.0 0 Dubai Riyadh Mecca Abu Dh bi Doh Da m m Musca K wait Jedda Ma a a City Source: Odnoletkova and Patzek 2022 Irrigation upgrade and expansion needs for sustainable water TABLE 1 use and storage in agriculture Region Unsustainable irrigation (ha) Irrigation expansion (ha) Irrigation expansion and upgrade (ha) Sub-Saharan Africa 2,742,130 50,904,559 53,646,689 East Asia and Pacific 36,135,260 6,815,020 42,950,280 Europe and Central Asia 15,018,514 60,790,425 75,808,939 Latin America and Caribbean 7,466,972 5,302,903 12,769,875 Middle East and North Africa 13,749,423 3,872,553 17,621,976 GCC countries 1,064,081 576,469 1,640,550 North America 15,457,692 6,200,331 21,658,023 South Asia 56,691,695 6,233,961 62,925,656 World 148,325,767 140,696,221 289,021,988 Source: World Bank 2024. 43 CHAPTER 4 GULF ECONOMIC UPDATE Water scarcity and thirsty economic sectors in the GCC The intensity of water use in the GCC affects Agriculture and industry are also driving several economic sectors. Renewable surface pollution in water resources at an increasing water, desalination capacity, and wastewater rate. Direct and indirect subsidies for well drill- treatment capacity are estimated at 4.14, 26.4, ing, pumps, fuel, and other inputs encourage and 10.07 billion cubic meters, respectively. unsustainable water use. Excessive fertilizers Despite tertiary treatment, treated wastewater and pesticides, as well as industrial produc- reuse is limited to developing green spaces and tion, raise levels of untreated wastewater, con- forests, signaling a need for sustainable water tributing to groundwater pollution through management programs. seepage. Large quantities of low-quality water are used to prevent crop wilting, with farmers Water scarcity and growing gaps between applying heavy chemical fertilizers to boost supply and demand present major challeng- yields. While basic sanitation coverage is high es for GCC economies. Factors such as lifestyle across the GCC, a significant portion relies on changes, industrialization, urbanization, and on-site facilities like septic tanks, which may climate change have intensified competition for be inadequate for pollution control in densely water among agriculture, industry, and urban populated areas. centers. On average, agriculture accounts for around 77 percent of the GCC water consump- Between 2017 and 2020, per capita freshwa- tion, industry 18 percent, and households 5 ter availability for productive and human percent. Despite heavy groundwater use in ag- use in the GCC dropped by 25 percent. This riculture, the sector’s value-added contribution reduction has been offset by increased use of remains low compared to countries with similar non-conventional sources, such as desalination, income levels (Table 2). Over-extraction has to ease pressure on conventional resources. led to groundwater pollution from seawater Consequently, the share of extracted ground- intrusion and brackish water migration from water in total freshwater use dropped to 70.5 lower aquifers (Saleh et al. 2023). percent in 2020 (Helal et al. 2024). TABLE 2 Water Resources in GCC countries Annual Agriculture Population Mean Annual Treated wastewater Percent of Water Country Freshwater Value Added (millions) Precipitation (mm) use (million m3) Use in Agriculture Resources (hm3) to GDP (%) Bahrain 1.7 80 116 31 45 0.3 Kuwait 4.3 110 20 189 54 0.4 Oman 5.1 175 1400 67 89 1.3 Qatar 2.9 75 58 64 59 0.1 Saudi Arabia 34.8 285 2400 487 88 1.9 UAE 9.9 90 150 264 83 0.7 Total 58.7 136 4144 1102 70 0.8 Sources: Helal et al. 2024. World Bank 2022. 44 CHAPTER 4 GULF ECONOMIC UPDATE Expanding wastewater treatment and reuse vironmental benefits and is also significant for is crucial to mitigating water scarcity and GCC societies. Saudi Arabia, for example, fac- containing costs. However, economic, cultural, es increasing water demand in municipalities, and social barriers limit the adoption of treated which rose by 4.5 percent annually over the past water in the GCC. Despite a high capacity of decade, while treated wastewater rose by 5.5 wastewater treatment in GCC countries a small percent annually. In 2020, only half of municipal fraction of recycled water is used for human water use was treated, with 18 percent of treat- consumption. However, other uses of treated ed wastewater further reused, illustrating the wastewater can be used to reduce the risks of need for more robust regulatory frameworks water stress, like aquifer recharge, and fodder to manage water consumption and pollution crop production. Aquifer replenishment has en- (Odnoletkova and Patzek 2023). PART II Economic Impacts of Water Scarcity Impact of water scarcity on agriculture and industry Climate change affects the structure and concentration of water withdrawals in agricul- functioning of economic and ecological sys- ture (Figure 34) can offset some of the economic tems, particularly in countries with a high risks associated with water scarcity (De Wall proportion of dryland areas. The impacts of et al 2023). water scarcity on agriculture are significant, with production projected to drop by 60 per- Global estimates indicate that water scarcity cent by 2050 in some countries. Water-saving and rising temperatures could lead to a de- technologies and fuel-switching in the power cline of 6 to 10 percent in food production by sector play a key role in mitigating the effects of 2050 (Kompas et al 2024). The MENA region water scarcity on electricity generation in some is projected to experience the highest decline parts of the Middle East (Hejazi et al. 2023). in food production under any climate scenario. Climate change alters precipitation patterns, Changes in water availability and other cli- modifying the spatial and temporal distribu- mate-related disturbances can significantly tion of green water availability for both rainfed impact food prices and inflation. Unfavorable and irrigated crops. The UAE, Saudi Arabia, climate conditions hinder the monetary poli- and Oman are predicted to face greater water cy pass-through to headline inflation, making demand than they can feasibly meet by 2050, price stability more achievable under positive resulting in a combined loss of agricultural ex- climate conditions. Effective climate policies, ports totaling $10 billion (Borgomeo et al. 2018). such as sustainable agricultural practices and robust water management, could help miti- Although agriculture contributes a small gate these impacts on food prices and infla- share of value added to the economy, it em- tion. For instance, increasing temperatures ploys one in five people in the GCC. In the and declining water resources elevate the costs MENA region including the GCC countries, of agricultural and industrial production and the agricultural sector produces less than 10 distribution, driving up the cost of goods and percent of total value added on average. Yet it services independently of demand, leading to accounts for 22 percent of total employment, supply-side inflation. Climate-driven costs in increasing to 31 percent among women (Nin- areas like food and energy can create persistent Pratt et al 2018). Despite substantial water with- inflationary pressures, meaning inflation re- drawals in agriculture, the sector’s contribution mains high despite central banks’ efforts to to the economy remains low compared to other stabilize it (Abidi et al. 2024). Reducing the sectors (Di Baldassarre et al. 2018). 45 CHAPTER 4 GULF ECONOMIC UPDATE FIGURE 34 Water withdrawals by economic sector, MENA and GCC countries Agriculture Industry Domestic Share of total water withdrawals (%) Yemen, Republic Iran, Islamic Republic Saudi Arabia Oman Syrian Arab Republic Morocco Iraq Tunisia Egypt, Arab Republic Libya United Arab Emirates Jordan Israel Lebanon Algeria Kuwait Qatar West Bank and Gaza Bahrain World average MENA average 0 10 20 30 40 50 60 70 80 90 100 Source: : De Waal et al. 2023. FIGURE 35 Agricultural production (Kg/m3) for GCC and MENA region Source: : Source: FAO 2021. Food production weight per cubic meter of sumption is essential for conserving valuable water in the GCC and MENA countries is one groundwater resources, which are frequently of the lowest in the world (Figure 35). As new overexploited in GCC countries and other arid crops that require less water are introduced to regions. By utilizing less water, agricultural enhance revenue, total agricultural production practices can align with sustainability princi- may still fall short of meeting future food de- ples, enabling farming in arid areas to persist mand. The reliance on imported agricultural without depleting water resources. This ap- products can increase the nutrient availability proach not only supports the long-term viability of food, as these imports often substitute for of the agricultural sector but also ensures its domestically grown crops that yield lower pro- sustainability for future generations. ductivity per unit weight. Reducing water con- 46 CHAPTER 4 GULF ECONOMIC UPDATE To address these challenges, GCC countries rapid development strains groundwater, with must enhance water adaptation strategies urban and agricultural expansion depleting to reduce the unsustainable use of water re- resources and contaminating water (Helal et sources. Economic diversification is increasing- al. 2024). ly necessary. Most GCC countries have limited adaptation measures linked to water use and Kuwait, Qatar, and the UAE import nearly efficiency (Figure 36). Research indicates that 100 percent of their cereals from the inter- countries with a significant proportion of unsus- national supply chain to mitigate high water tainable water footprints associated with crop stress. Water stress arises when withdrawals production are primarily found in the Middle for human, agricultural, and industrial uses East, including the GCC countries, and Central exceed renewable water resources, resulting Asia (Mekonnen and Hoekstra, 2020). Qatar in a high water withdrawal-to-availability ratio. ranks highest, with approximately 71 percent In all GCC countries, water withdrawals exceed of its water footprint deemed unsustainable. 95 percent of surface freshwater availability. In Saudi Arabia, groundwater depletion has Despite clear strategies to gradually reduce primarily resulted from extensive agriculture, agricultural water footprints and alleviate particularly in Riyadh, prompting ambitious water stress, water demand management re- policy reforms. Water depletion in Wadi Uranah mains essential for the domestic sector, which and Makkah has increased, with irrigation rates increasingly consumes more water. Domestic exceeding recharge rates, putting aquifers at water consumption among GCC residents is risk. In Oman, rapid urban and agricultural nearly double that of high-income residents in expansion has strained groundwater resources, other regions with similar development levels threatening traditional Aflaj irrigation systems. and greater freshwater resource endowments. Studies indicate declining cultivated areas and Evidence shows also that countries with sim- vegetation, with urbanization encroaching on ilar levels of development and much greater agricultural land. Rising sea levels exacerbate freshwater resource endowments have much groundwater salinity, while declining agricul- lower levels of residential water consumption ture in areas like Al-Jebel Al-Akhdar impacts (World Bank 2017a). tourism and water sustainability. The UAE’s FIGURE 36 Adaptation measures linked to water, select MENA and GCC countries Country Irrigation Water efficiency Water for livestock Water harvesting Algeria Bahrain Djibouti Egypt Iraq Israel Jordan Kuwait Lebanon Morocco Oman Qatar Saudi Arabia Syrian Arab Republic Tunisia Source: United : World Arab Bank 2024. CLEAR Framework. Emirates Source: World Bank 2024. CLEAR Framework. 47 CHAPTER 4 GULF ECONOMIC UPDATE Limits on water availability significantly im- generate welfare gains if water footprint costs pact water-intensive sectors of the economy are considered. These countries could achieve in GCC countries. Hejazi et al. (2023) estimate greater economic value by importing agricul- that water scarcity has pronounced effects on tural needs from regions where water and land reducing total crop production in Saudi Arabia, resources are not constrained. and to a lesser extent in Kuwait. By applying the GCAM model to MENA region countries, it With global supply chains increasingly dis- is projected that agricultural production in the rupted by extreme weather, the importation Arabian Peninsula will decline nearly threefold of food and essential goods to the region is at by 2040 compared to 2018 baseline production risk. The UAE imports 90 percent of its food, (Hejazi et al. 2023). However, important trade- representing an economic vulnerability that the offs exist in substituting domestic agricultural government seeks to mitigate. In recent years, production with imports. A reduction in do- the UAE has experimented with growing rice mestic production of agricultural commodities in Sharjah. While the prospect of desert-grown significantly impacts agricultural trade pat- crops (with coffee and wheat next on the trial terns in the region. If supplies of agricultural list) is appealing for enhancing food security, commodities decrease in one area, increased it places additional strain on existing water agricultural imports in the MENA region could supplies. Trends in Water Footprints and Water Use Efficiency With most reductions taking place in the where water is scarce due to high aridity, in- early 2000s, the water footprint in GCC has crements in water footprints can accelerate been declining. The water footprint, the total water stress over time. Half of the footprint blue and green water used in production of GCC (54 percent) corresponds to Saudi Arabia, the countries, declined from 17.3 billion m3 in 2000 largest and most populous GCC country (61 to 15.8 billion of m3 in 2019 (Figure 37, a). Most percent of the GCC population). Relative to of the decline in the water footprints of GCC 2000, Saudi Arabia decreased its share in the countries took place in the early 2000s. But footprint while Oman and Kuwait increased it in recent years (2015-19), the water footprint (Figure 37, b). has been increasing slightly. In GCC countries FIGURE 37 Water Footprint in GCC (a) Trend (b) Share of each country 20000 Kuwait Oman United Arab Emirates Qatar Saudi Arabia 15000 7% 6% 20% 11% 20% Millions of m3 10000 2% 13% 2000 2019 2% 5000 0 66% 54% 2000 2005 2010 2015 2019 Note: Bahrain is excluded because it lacks information of livestock water footprint. Source: Global Water Monitoring Report (2024, forthcoming) World Bank. Based on global gridded crop model ACEA 175 individual crops of 13 crop groups represented in FAOSTAT. Livestock, industry, and domestic use is calculated at the grid- level using information from FAOSTAT. 48 CHAPTER 4 GULF ECONOMIC UPDATE The composition of the footprint markedly in 2000 to 28 percent in 2019 while the share differs from other Middle East and North of livestock increased from 30 to 59 percent. Africa (MENA) countries (Figure 38). In other The share of domestic use increased from 5 MENA countries, the composition of the foot- to 12 percent while the share of industry re- print has changed little since 2000, most of it mained at around 1 percent. The composition corresponding to crop production (85 percent) differs by country (Figure 38, c). Livestock is and livestock (11 percent). In GCC countries, the largest share in Oman (76 percent) and currently most of it corresponds to livestock Kuwait (9 percent). Domestic use is the largest (59 percent), followed by crop production (28 share in Qatar (59 percent). Industrial use has percent), domestic use (12 percent), and in- its largest relative share in Qatar (11 percent). dustry (1 percent). It changed, diverging from Finally, crop production has its largest relative crop production towards livestock. The share share in Saudi Arabia (38 percent). of crop production decreased from 65 percent FIGURE 38 Composition of Water Footprint GCC and Non-GCC MENA Countries Crops Livestock Industry Domestic (a) GCC (c) By GCC country 2019 28.1% 58.8% 12.3% Kuwait 90.2% 6.6% 2010 41.1% 51.9% 6.5% Qatar 7.7% 29.1% 59.4% 2000 64.8% 29.6% 5.2% 0% 20% 40% 60% 80% 100% Oman 21.5% 76.4% (b) MENA (exc. GCC) UAE 22.2% 56.5% 21.2% 2019 84.9% 10.5% 3.5% Saudi 38.0% 50.6% 10.4% 2010 Arabia 84.1% 11.7% 2.9% 2000 83.2% 12.4% 3.0% 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% Note: Bahrain is excluded because it lacks information of livestock water footprint. Source: Global Water Monitoring Report (2024, forthcoming) World Bank. Based on global gridded crop model ACEA 175 individual crops of 13 crop groups represented in FAOSTAT. Livestock, industry, and domestic use is calculated at the grid-level using information from FAOSTAT. 5% to 12% Increase in share of domestic use from 2000 to 2019 49 CHAPTER 4 GULF ECONOMIC UPDATE The per capita water footprint in GCC coun- MENA countries has decreased. Among GCC tries is lower than in other MENA countries, countries, the UAE experienced significant but it has remained stable since 2012. In GCC reductions (from around 1000 m³ in 2000 to countries, the footprint per person is 271 m³, 350 m³ in 2019), followed by Qatar (500 m³ to approximately half that of other MENA coun- 100 m³). Kuwait and Saudi Arabia experienced tries (569 m³). It steadily decreased from 567 lower reductions, while Oman’s footprint per m³ in 2000 to 289 m³ in 2012. Since then, it has person remained unchanged (Figure 39, c). remained relatively constant, while that of other FIGURE 39 Trends in Water Footprint per capita, GCC and Non-GCC MENA countries (a) GCC vs MENA (exc. GCC) (b) GCC countries in which (c) GCC countries in which the footprint decreased the footprint did not change 2012 1200 1200 1200 UAE 1000 1000 1000 800 800 800 m3 per person m3 per person m3 per person Non-GCC: MENA Non GCC:Iraq Libya 600 600 600 (exc.GCC) Kuwait Oman 400 400 400 GCC Saudi Arabia 200 200 200 Qatar 2000 2005 2010 2015 2019 2000 2005 2010 2015 2019 2000 2005 2010 2015 2019 Note: Bahrain is excluded because it lacks information of livestock water footprint. Source: Global Water Monitoring Report (2024, forthcoming) World Bank. Based on global gridded crop model ACEA 175 individual crops of 13 crop groups represented in FAOSTAT. Livestock, industry, and domestic use is calculated at the grid-level using information from FAOSTAT. 50 CHAPTER 4 GULF ECONOMIC UPDATE Efficiency in Industry 202 to 173 m³. Although not strictly compara- ble due to differing reliance on oil production, The amount of water used by industry has efficiency is lower in other MENA countries. increased, but efficiency has improved. Since Among GCC countries, Bahrain and Qatar 2005, water use in industry by GCC countries experienced the largest increases in efficiency, rose from 79 to 131 million m³. However, water while the UAE also improved. In Saudi Arabia, use has become more efficient. The amount of efficiency remained constant, and in Kuwait, water used per million dollars of value added in it decreased. Oman experienced a substantial industry (constant 2005 prices) decreased from decrease in efficiency. FIGURE 40 Efficiency in Water Use for Industrial Production, GCC and Non-GCC MENA Countries (a) GCC (b) MENA (exc. GCC) (c) GCC Countries 300 10000 500 Oman 250 m3 per milion (constant 2015 USD) m3 per milion (constant 2015 USD) m3 per milion (constant 2015 USD) 400 7500 200 300 173 Saudi 150 5000 Arabia 4460 200 Bahrain 100 Kuwait 2500 100 Qatar 50 UAE 2000 2005 2010 2015 2019 2000 2005 2010 2015 2019 2000 2005 2010 2015 2019 Note: Industrial GDP (constant 2015 USD prices) is available for almost all MENA countries since 2005. Source: Global Water Monitoring Report (2024, forthcoming) World Bank. Efficiency in Agriculture gains but remains more efficient than the UAE, Kuwait, and Saudi Arabia. Qatar and Bahrain Water efficiency in crop production has in- experienced minimal gains in efficiency but are creased and surpassed that of other MENA the most efficient GCC countries. countries. In 2019, GCC countries produced 10.2 million tons of crops, down from 12.0 Water efficiency in livestock production is million tons in 2000. Most production con- higher than that of other MENA countries sists of forage crops (42 percent) and dates but has remained constant. In 2019, GCC (18 percent), with other major crops including countries produced 3.1 million tons of live- watermelons, cantaloupes, potatoes, tomatoes, stock, up from 1.9 million tons in 2000. Most and barley (24 percent). The total amount of wa- production consists of chickens (27 percent), ter used decreased from 11.2 billion m³ in 2000 camels (23 percent), cattle (19 percent), sheep to 4.4 billion m³ in 2019. In 2000, other MENA (18 percent), and goats (12 percent). The total countries were more efficient, using fewer cubic amount of water used increased from 5.1 billion meters of water per ton (692 vs. 932). While m³ in 2000 to 9.3 billion m³ in 2019. In 2019, efficiency in other MENA countries improved GCC countries used 63 m³ per ton compared to slightly, GCC countries experienced substan- 82 m³ per ton used by other MENA countries. tial efficiency gains. Currently, GCC countries Throughout the period, other MENA countries use 435 m³ per ton, half the amount used in were less efficient. Saudi Arabia is the only 2000, and are more efficient than other MENA country to experience gains in efficiency, while countries (593 m³). The UAE experienced the efficiency worsened in Qatar, and remained largest increase in efficiency, followed by Ku- constant in all other countries. wait and Saudi Arabia. Oman achieved fewer 51 CHAPTER 4 GULF ECONOMIC UPDATE FIGURE 41 Efficiency in Water Use for Agricultural Production, GCC and Non-GCC MENA Countries CROPS (a) GCC vs MENA (exc. GCC) (b) GCC countries 1500 1200 1000 750 MENA 800 m3 per tonne m3 per tonne (exc.GCC) 500 600 Kuwait GCC Saudi Arabia 400 UAE 250 Oman 200 Bahrain Qatar 2000 2005 2010 2015 2019 2000 2005 2010 2015 2019 LIVESTOCK (c) GCC vs MENA (exc. GCC) (d) GCC countries 100 100 MENA (exc.GCC) 80 80 Saudi Arabia Kuwait m3 per tonne m3 per tonne 60 GCC 60 Qatar UAE Oman 40 40 20 20 2000 2005 2010 2015 2019 2000 2005 2010 2015 2019 Note: Bahrain is excluded from the analysis of livestock because it lacks information of livestock water footprint. Source: Global Water Monitoring Report (2024, forthcoming) World Bank. Based on global gridded crop model ACEA 175 individual crops of 13 crop groups represented in FAOSTAT and on gridded estimations of water use by livestock. Efficiency gains have shifted changes in the due to the efficiency effect. The structure and water footprint of crops, while increased production effects also contributed to gains, production has shifted that of livestock. An as GCC countries produced fewer crops and index decomposition analysis determines the shifted towards less water-intensive crops. In contribution of three factors to changes in the contrast, other MENA countries increased their water footprint: the production effect (changes water footprint for crops by 25 percent, with due to increased production), the structure ef- a significant increase in production leading to fect (changes due to producing different types a higher footprint despite efficiency gains. In of crops or livestock), and the efficiency effect GCC countries, increased production resulted (changes due to using less or more water). The in a substantial increase in the livestock foot- Logarithmic Mean Divisia Index method was print, while other MENA countries experienced employed for this analysis. Negative values a smaller increase due to a lower production denote that less water is used. Between 2000 effect. Neither GCC nor non-GCC countries and 2019, GCC countries reduced their water gained in efficiency, with both experiencing footprint for crops by 60 percent, primarily minor gains from the structure effect. 52 CHAPTER 4 GULF ECONOMIC UPDATE FIGURE 42 Decomposition of Changes in Water Use for Agricultural Production, GCC and Non-GCC MENA Countries CROPS (a) GCC vs MENA (exc. GCC) (b) GCC countries WF Change (1) Production WF Change (1) Production (2) Structure (3) Efficiency (2) Structure (3) Efficiency 40% 40% 40% 40% 20% 20% (WF year - WF 2000) / WF 2000 (WF year - WF 2000) / WF 2000 (WF year - WF 2000) / WF 2000 (WF year - WF 2000) / WF 2000 20% 20% 0 0 0 0 –20% –20% –20% –20% –40% –40% –40% –40% –60% –60% –60% –60% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 LIVESTOCK (c) GCC vs MENA (exc. GCC) (d) GCC countries WF Change (1) Production WF Change (1) Production (2) Structure (3) Efficiency (2) Structure (3) Efficiency 60% 60% 60% 60% (WF year - WF 2000) / WF 2000 (WF year - WF 2000) / WF 2000 (WF year - WF 2000) / WF 2000 (WF year - WF 2000) / WF 2000 40% 40% 40% 40% 20 20 20 20 0% 0% 0% 0% –20% –20% –20% –20% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: Global Water Monitoring Report (2024, forthcoming) World Bank. Based on global gridded crop model ACEA 175 individual 2019 crops of 13 crop groups represented in FAOSTAT and on gridded estimations of water use by livestock. Water efficiency in GCC for productive purposes There is a stark contrast in water productiv- municipal services water productivity indicates ity ratios between water-intensive sectors, how much more productive industrial water use particularly in GCC and European countries. is compared to agricultural water use in each GCC countries maximize economic output from country. Higher ratios signify that industri- industrial water use, while European countries al water productivity significantly surpasses maintain a more balanced water productivity that of agriculture. All GCC countries, except across productive sectors (agriculture, indus- Oman and Saudi Arabia, exhibit high values, try, municipal services). Comparing industrial indicating that water is much more economi- water productivity to both agricultural and cally productive in industrial uses compared 53 CHAPTER 4 GULF ECONOMIC UPDATE to agriculture. This disparity may result from Improving water productivity and efficiency inefficiencies or high subsidized tariffs in ag- in water-intensive sectors contributes to riculture compared to the industrial sector. enhancing both water security and energy security. Domestic electricity and water con- Municipal services also exhibit higher in- sumption reduce the availability of fossil fuels efficiency than the industrial sector. Rep- for export. The production of freshwater risks resented by orange dots (Figure 43), the ratio GCC hydrocarbon exports and their signifi- between industrial water productivity and cant contribution to budget revenues (Zubari municipal water productivity (right y-axis) and Alajjawi, 2021). For instance, in the next shows that in most GCC countries water use three decades, Saudi Arabia may require 18 in industry has higher economic returns than billion cubic meters per year, a projected sixfold in municipal services. In contrast, European increase from 2018, significantly increasing countries like France, the Netherlands, and energy demands (Al-Badi and Al-Mubarak, Austria have lower ratios, indicating a relatively 2019). By 2050, certain GCC members may smaller gap between industrial and municipal lack sufficient natural gas to desalinate the water productivity. water needed for municipal use alone (Jäger- skog and Barghouti, 2022). The industrial sector in GCC countries yields higher economic productivity per unit of Water use efficiency can be improved cost-ef- water compared to agriculture and munic- fectively through the current structure of ipal services. European countries display a wastewater treatment, desalination, and wa- more balanced use of water between industry, ter reuse infrastructures in GCC countries. agriculture, and municipal services, with low- Increasing wastewater treatment and reuse er ratios especially for industry-to-municipal capacity can significantly alleviate pressure services, suggesting more consistent water on freshwater resources. Research emphasiz- productivity across sectors. Other countries es that wastewater treatment can help meet in the Middle East and North Africa show mod- the growing water demand in these countries, est ratios, indicating a more balanced or lower thereby reducing reliance on expensive de- economic productivity of water across sectors, salination processes and over-extraction of with industry not significantly more productive groundwater (Saleem 2023). The economic than agriculture or municipal services. viability of wastewater treatment is further sup- FIGURE 43 Water productivity (US$/cubic meter for GCC and high-income countries, 2022) Ratio of industry to agriculture Ratio of industry to municipal services (right axes) 4500 60 Ratio of water productivity (US$/ cubic meter) 4000 50 3500 3000 40 2500 30 2000 1500 20 1000 10 500 0 0 UAE Qatar Kuwait Saudi Arabia Oman Bahrain Algeria Jordan Tunisia Morocco Lebanon Sweden Belgium Lithuania France Finland Austria Netherlands Spain Poland Denmark Source: Prepared by World Bank with data from FAO Aquastat. 54 CHAPTER 4 GULF ECONOMIC UPDATE ported by the potential for treated wastewater to be reused in agriculture, which constitutes a major portion of water consumption in the GCC. This reuse can lead to savings in water costs for farmers and contribute to food security in a region that imports a large percentage of its food (Qureshi 2020). Moreover, the economic analysis of wastewa- ter treatment plants indicates that invest- ments in these facilities can yield long-term financial benefits. While specific studies on the economic viability of wastewater treat- ment systems in the GCC are limited, Bassi et al. discuss the broader economic implica- tions of wastewater treatment investments, highlighting that the social and environmental benefits derived from efficient systems can outweigh initial capital expenditures (Bassi et al. 2022). Additionally, the integration of inno- vative technologies in wastewater treatment can enhance economic efficiency by reducing operational costs and improving treatment outcomes (Faraloni et al. 2023). The economic implications of expanding wastewater treatment extends to the stabili- ty of GDP growth in GCC countries. Evidence suggests that effective wastewater manage- ment can positively impact economic develop- ment by creating jobs in the wastewater sector and related industries, thereby contributing to overall economic diversification efforts in GCC countries (Alharthi 2023). This is particularly relevant as GCC countries seek to reduce their dependence on oil revenues and diversify their economies in line with strategic initiatives like Vision 2030 (Alharthi 2019). Furthermore, the adoption of public-private partnerships (PPPs) in wastewater treat- ment can enhance economic efficiency by leveraging private sector investment and expertise. Meng et al. argue that such collab- orations can lead to improved performance and innovation in wastewater management, ultimately resulting in cost savings and better service delivery (Meng et al. 2022). This model can be particularly beneficial in the GCC con- text, where rapid urbanization and population growth demand efficient and scalable solutions to water management challenges. 55 CHAPTER 4 GULF ECONOMIC UPDATE Oman PART III Water security, climate risk and water sector performance Country Benchmarks of Water Security The country level overview of water security best performers, particularly for women, with a indicators benchmarks the performance rate of 57 DALYs per 100,000 population com- between Oman, Qatar, Saudi Arabia, and the pared to Cyprus’s leading rate of 11 per 100,000. United Arab Emirates against high-income countries in the Middle East, including the Oman also faces challenges in biodiversity six GCC nations, and two countries in Europe conservation. Its wetland loss score and the with similar water-endowment conditions proportion of its territory under terrestrial and per capita income, Cyprus, Malta and and marine protection are closer to the lowest Spain. The benchmarks are visualized using performers, signaling insufficient safeguards “Flower Diagrams,” where the length of each for critical biodiversity areas. This highlights an petal corresponds to performance: longer pet- urgent need to enhance conservation efforts for als represent stronger performance or lower aquatic ecosystems. Regarding water resourc- dependence on water resources, while shorter es, Oman experiences high inter-annual rainfall petals indicate weaker performance or higher variability, high per capita water withdrawal, water dependence. Indicators with very short and the highest levels of water stress among petals signify that the country is performing its peers, as measured by AQUEDUCT. Projec- near the level of the worst performer in the peer tions indicate that Oman’s population will face group. In these diagrams, a red label marks the extreme water stress under a business-as-usual worst performance or proximity to it, whereas scenario by 2030 and 2050. a green label indicates leading performance or closeness to the best performer. The analysis Benchmarking Oman against high-income below summarizes the key water security chal- Middle Eastern and European countries with lenges faced by these countries, focusing on the similar water endowment reveals several key areas where their performance significantly areas for improvement: lags behind the best performers in the region. • Water pricing and efficiency: Oman has Oman low water utility prices and low water use efficiency, particularly in irrigated agricul- ture and industry. This highlights the need Compared to its peer countries, Oman’s for more effective water demand manage- economy exhibits a heavy reliance on wa- ment and the adoption of better water use ter-dependent sectors, which contribute practices across sectors. approximately 58 percent of gross value add- • Access to water supply: Levels of access ed and nearly 90 percent of major export to at least basic and safely managed water earnings. This dependence underscores the supply, particularly in rural areas, remain critical role of water in sustaining economic close to the worst-performing peer coun- activity and export performance. But Oman tries. ranks among the lowest performers in terms • Water-related risk mitigation: Oman has high exposure to water-related risks, such of health indicators, including infant mortality as floods, riverine and droughts, indicating and prevalence of stunting. Despite significant that current mitigation practices require progress in reducing disability-adjusted life significant upgrades, particularly in infra- years (DALYs) linked to unsafe water, sanita- structure and risk management systems. tion, and hygiene, Oman remains far from the 56 CHAPTER 4 GULF ECONOMIC UPDATE FIGURE 44 Oman’s water security performance indicators Economy People Livable Planet Supply Demand Supply and Demand Scale Water dependent gross Scale Annual precipitation in mm Terrestrial and marine value added* protected areas 1 1 Water dependent exports* 2050 BAU baseline Renewable internal water water stress resources per capita 0.5 Water quality - nutrients, 0.5 Cummulative damages salts 1990 - 2023 2030 BAU baseline Interannual variability Wetland loss score Infant mortality rate water stress Population exposure to Mortality attributed to dry rain-shocks unsafe WASH Baseline water stress Seasonal variability % affected population DALYs attributable to average 1990 - 2023 unsafe WASH - All % internal water Standardised Precipitation - DALYs attributable to unsafe DALYs attributable to resources withdrawals Evapotranspiration Index WASH - Male unsafe WASH - Female Water withdrawal per capita Water Resources Management Delivery Water-Related Services Scale Degree of IWRM implementation Scale % national water safely managed 1 % CH4 emissions 1 % national water from wastewater at least basic 0.5 Average water bill 0.5 % national sanitation at least basic Overall water Dam capacity use efficiency per capita % non-revenue water % urban water at least basic Average 2010 - 2020 % rural water ODA for WASH at least basic Level of water stress inc. EFR Level of water stress % total wastewater flow % urban sanitation (safely) treated at least basic % national wastewater treated % rural sanitation at least basic Delivery Water-Related Services Mitigation of Water-Related Risks Scale Contribution of irrigation Scale Exposure to floods to agriculture GVA 1 1 Services water % cultivated land use efficiency with irrigation Disaster risk 0.5 % land experienced 0.5 management capacity a wet shock (2000 - 2014) Industrial water % equipped area use efficiency actually irrigated Physical infrastructure Exposure to droughts Irrigated agriculture % agriculture for disasters water use efficiency water managed area with irrigation % land experienced Riverine flood risk Water intensity of electricity % of total grain a dry shock (2000 - 2014) production irrigated Source: Water Security Dashboard, World Bank 2024. 57 CHAPTER 4 GULF ECONOMIC UPDATE By 2030 and 2050, Qatar the population is expected to undergo the highest level of water stress under a business-as- usual scenario. Qatar Identified improvement areas for Qatar when benchmarked with high-income Middle Compared to selected peer countries, Qatar Eastern and European countries with similar relies heavily on water for economy, with wa- water endowment to tackle performance ter dependent sectors contributing around challenges include the following: 57 percent of gross value added. For export earnings water-dependent sectors represent • Water quality and groundwater manage- almost 95 percent of major export earnings. ment: Qatar displays relatively low ambient Qatar is performance is the lowest in terms of quality of water bodies and groundwater. This wetland loss and closer to the worst performer highlights the need for more effective policies among the selected peer countries in terms of and practices to reduce water pollution and share of territory under territorial and marine prevent further depletion of groundwater protected areas, highlighting the need to sig- resources. nificantly improve efforts for conservation of aquatic ecosystems. • Water pricing and water use efficiency: Qatar’s low water utility prices and relative Regarding water endowment and water bal- low water use efficiency in irrigated agricul- ance, Qatar, which has low renewable inter- ture and services suggest a need for effective nal freshwater resources per capita (about water demand management. 20 cubic meters per year), faces the highest level of water stress. By 2030 and 2050, the Mitigation of drought risks. The high expo- population is expected to undergo the highest sure to droughts and low disaster risk man- level of water stress under a business-as-usual agement capacity suggests current practices scenario. to mitigate drought risks need improvement. 58 CHAPTER 4 GULF ECONOMIC UPDATE Source: Water Security Dashboard, World Bank 2024. FIGURE 45 Qatar’s water security performance indicators Economy People Livable Planet Supply Demand Supply and Demand Scale Water dependent gross Scale Annual precipitation in mm Terrestrial and marine value added* protected areas 1 Water dependent exports* 1 2050 BAU baseline Renewable internal water Wetland loss score Cummulative damages water stress resources per capita 0.5 0.5 1990 - 2023 Population exposure to Infant mortality rate 2030 BAU baseline Interannual variability dry rain-shocks water stress % affected population Mortality attributed to average 1990 - 2023 unsafe WASH Baseline water stress Seasonal variability Prevalence stunting DALYs attributable to height / age unsafe WASH - All % internal water Standardised Precipitation - DALYs attributable to resources withdrawals Evapotranspiration Index unsafe WASH - Female Water withdrawal per capita Water Resources Management Delivery Water-Related Services Scale % national water safely Scale Degree of IWRM managed 1 implementation 1 % CH4 emissions % national sanitation 0.5 from wastewater 0.5 safely managed Overall water Ambient quality use efficiency water bodies Average water bill % national water at least basic Level of water stress Ambient quality inc. EFR groundwater % domestic wastewater flow % national sanitation (safely) treated at least basic Level of water stress % national wastewater treated Delivery Water-Related Services Mitigation of Water-Related Risks Scale Contribution of irrigation Scale Exposure to floods to agriculture GVA 1 1 Services water % potential area equipped use efficiency for irrigation Disaster risk % land experienced 0.5 0.5 management capacity a wet shock (2000 - 2014) Industrial water % cultivated land use efficiency with irrigation Irrigated agriculture % equipped area Physical infrastructure Exposure to droughts water use efficiency actually irrigated for disasters Water intensity of electricity % agriculture water managed % land experienced Riverine flood risk area with irrigation a dry shock (2000 - 2014) % of total grain production irrigated Source: Water Security Dashboard, World Bank 2024. 59 CHAPTER 4 GULF ECONOMIC UPDATE Saudi Arabia • Water stress and competition: Extreme Saudi Arabia water stress, where demand far exceeds re- Compared to its peer countries, Saudi Ara- newable supply, leads to intense competition bia’s economy demonstrates significant re- over freshwater resources. liance on water-dependent sectors, which account for approximately 52 percent of • Water pricing and efficiency: Water util- gross value added. Water accounts for nearly ity prices are low, and water use efficiency 94 percent of major export earnings. Addi- is poor. For example, irrigated agriculture tionally, between 1990 and 2023, the country yields just $0.73 per cubic meter compared faced substantial cumulative damage from ex- to $3.16 in Malta, industry achieves $212 per treme hydroclimatic events. Despite reducing cubic meter compared to $4,436 in the UAE, disability-adjusted life years (DALYs) from un- and services produce $95 per cubic meter safe water, sanitation, and hygiene from 766 compared to $339 in Oman. This highlights per 100,000 people in 1990 to 50 per 100,000 a critical need for improved water demand in 2021, Saudi Arabia remains closer to the management and efficiency across sectors. lowest-performing countries across all demo- graphics. Conservation efforts also lag. Only 17.7 • Sanitation access: Access to basic and safe- percent of freshwater key biodiversity areas are ly managed sanitation for urban and rural protected, compared to 51.4 percent in Spain populations is closer to the selected peers’ and 36.6 in Cyprus, and just 4.5 percent of its worst performers. territory under terrestrial and marine protec- tion, compared to Bahrain’s 20.5 percent and • Wastewater treatment: Saudi Arabia treats 17.9 percent in Spain. These gaps underscore an 88 percent of wastewater, which is below urgent need to bolster biodiversity and fresh- Bahrain’s near-complete rate of nearly 100 water conservation. percent. In terms of water resources and balance, • Irrigation systems: One-third of the land Saudi Arabia faces challenges of groundwa- equipped for irrigation is not utilized, rep- ter depletion. It has critically low renewable resenting missed opportunities to optimize internal freshwater resources per capita (67 water use in agriculture. cubic meters annually). The country records the highest per capita water withdrawal (723 • Disaster preparedness: High exposure cubic meters per year) and an unsustainable to droughts and inadequate physical infra- withdrawal of 974 percent of its renewable wa- structure to mitigate flood and drought risks ter resources. Under a business-as-usual sce- further compound water-related challenges. nario, Saudi Arabia is already under high water stress, which is projected to persist through To address these issues, Saudi Arabia must 2030 and 2050. focus on enhancing water governance, im- proving infrastructure for water-related risk When benchmarked against high-income mitigation, investing in wastewater treat- Middle Eastern and European countries with ment and reuse, and implementing policies similar water endowment, Saudi Arabia’s key to encourage efficient water use across all areas for improvement include: sectors. These steps are vital to ensuring long- term water security and sustainability. 60 CHAPTER 4 GULF ECONOMIC UPDATE FIGURE 46 Saudi Arabia’s water security performance indicators Economy People Livable Planet Supply Demand Supply and Demand Scale Water dependent gross Terrestrial and marine value added* Scale Annual precipitation in mm protected areas 1 Water dependent exports* 1 2050 BAU baseline Renewable internal water Water quality - nutrients, Cummulative damages water stress resources per capita 0.5 salts 0.5 1990 - 2023 Wetland loss score Infant mortality rate 2030 BAU baseline Interannual variability water stress % freshwater Key Mortality attributed to Biodiversity Areas und... unsafe WASH Water conflicts DALYs attributable to Baseline water stress Seasonal variability unsafe WASH - All Population exposure to DALYs attributable to dry rain-shocks unsafe WASH - Female % internal water Standardised Precipitation - resources withdrawals Evapotranspiration Index DALYs attributable to Water withdrawal per capita unsafe WASH - Male Water Resources Management Delivery Water-Related Services Scale Degree of IWRM implementation Scale % national sanitation safely managed 1 % CH4 emissions 1 % urban sanitation from wastewater safely managed 0.5 Average water bill 0.5 % national water at least basic Overall water Dam capacity use efficiency per capita Average 2010 - 2020 % national sanitation ODA for WASH at least basic % domestic wastewater % urban water flow (safely) treated at least basic Level of water stress inc. EFR Level of water stress % total wastewater flow % rural water (safely) treated at least basic % rural sanitation at least basic % urban sanitation at least basic Delivery Water-Related Services Mitigation of Water-Related Risks Scale Contribution of irrigation Scale Exposure to floods to agriculture GVA 1 Services water % cultivated land use efficiency with irrigation Disaster risk % land experienced 0.5 management capacity a wet shock (2000 - 2014) Industrial water % equipped area use efficiency actually irrigated Physical infrastructure Exposure to droughts Irrigated agriculture % agriculture for disasters water use efficiency water managed area with irrigation % land experienced Riverine flood risk Water intensity of electricity % of total grain a dry shock (2000 - 2014) production irrigated Source: Water Security Dashboard, World Bank 2024. 61 CHAPTER 4 GULF ECONOMIC UPDATE United Arab Emirates Benchmarking the UAE against other U.A.E high-income Middle Eastern and Europe- an countries with similar water endowment Compared to its peer countries, the Unit- reveals several areas for improvement: ed Arab Emirates (UAE) demonstrates a strong dependence on water to sustain its • Water demand and pricing: Demand for wa- economy, employment, and export earnings. ter exceeds the renewable supply, yet water Water-dependent sectors contribute approxi- utility prices remain low (US$1.74 per cubic mately 51 percent of gross value added, employ meter), compared to US$3.58 in Malta. This 42 percent of the workforce, and account for disparity underscores the need for better 93 percent of major export revenues. At the pricing mechanisms to manage demand. same time, the UAE faces significant exposure to dry rainfall shocks, with 0.42 percent of the • Water use efficiency: Overall water use effi- population affected compared to only 0.01per- ciency is relatively low, generating US$80 per cent in Qatar. Moreover, 39.4 percent of the cubic meter, compared to US$215 in Malta land receives dry shocks compared to only 6.7 and US$184 in Qatar. Improved water use percent in Qatar. practices and enhanced demand manage- ment are critical to addressing this gap. The UAE confronts critically low renewable internal freshwater resources per capita, • Exposure to dry shocks: The UAE faces at just 16 cubic meters annually. The UAE a high proportion of land affected by dry records the third highest per capita water shocks (39.4 percent between 2000 and withdrawal (523 cubic meters annually), after 2014), compared to just 6.7 percent in Qa- Saudi Arabia and Spain, and withdraws unsus- tar. This indicates that the current approach tainably internal renewable water resources, to land desertification requires substantial the second largest after Bahrain. The country improvement. faces high water stress, a condition expected to persist through 2030 and 2050 under a busi- • Flood and drought risks: The UAE fac- ness-as-usual scenario. es significant exposure to riverine floods, droughts, and other extreme weather events, compounded by inadequate physical infra- structure to mitigate these risks. 62 CHAPTER 4 GULF ECONOMIC UPDATE FIGURE 47 UAE water security performance indicators Economy People Livable Planet Supply Demand Supply and Demand Scale Water dependent gross Scale Annual precipitation in mm Terrestrial and marine value added* protected areas 1 Water dependent 1 employment* 2050 BAU baseline Renewable internal water water stress resources per capita Water quality - nutrients, 0.5 Water dependent exports* 0.5 salts Cummulative damages 2030 BAU baseline Interannual variability Wetland loss score water stress 1990 - 2023 Population exposure to Infant mortality rate dry rain-shocks Baseline water stress Seasonal variability % affected population DALYs attributable to average 1990 - 2023 unsafe WASH % internal water Standardised Precipitation - DALYs attributable to DALYs attributable to resources withdrawals Evapotranspiration Index unsafe WASH - Female unsafe WASH - All Water withdrawal per capita Water Resources Management Delivery Water-Related Services Scale Degree of IWRM Scale % national sanitation safely implementation managed 1 % CH4 emissions 1 % urban sanitation from wastewater safely managed Overall water 0.5 Dam capacity use efficiency per capita Average water bill 0.5 % rural sanitation safely managed % domestic wastewater % national water flow (safely) treated at least basic Level of water stress Ambient quality % national wastewater % national sanitation inc. EFR water bodies treated at least basic Level of water stress Ambient quality % rural sanitation % urban water groundwater at least basic at least basic % urban sanitation at least basic % rural water at least basic Delivery Water-Related Services Mitigation of Water-Related Risks Scale Contribution of irrigation Scale Exposure to floods to agriculture GVA 1 1 Services water % potential area equipped use efficiency for irrigation Disaster risk 0.5 % land experienced 0.5 management capacity a wet shock (2000 - 2014) Industrial water % cultivated land use efficiency with irrigation Irrigated agriculture % equipped area Physical infrastructure Exposure to droughts water use efficiency actually irrigated for disasters Water intensity of electricity % agriculture water managed % land experienced Riverine flood risk area with irrigation a dry shock (2000 - 2014) % of total grain production irrigated Source: Water Security Dashboard, World Bank 2024. 63 CHAPTER 4 GULF ECONOMIC UPDATE Climate and water risks Climate change and water pollution are com- These include the reuse of treated wastewater pounding the costs of subtracting, desalinat- and the implementation of efficient irrigation ing, and treating water. The over-extraction of techniques in agriculture, a major consumer of groundwater beyond safe yield levels is increas- water in the region (Qureshi 2020). ing pollution of existing groundwater aquifers. This is due to the intrusion of saline seawater Given the region’s dependency on desalina- and the upcoming of brackish and saline water tion, it is essential to factor in both water supplies from lower aquifers. Over-abstraction and energy usage. GCC countries have limited from groundwater aquifers along the coast has opportunities to use freshwater supplies, so resulted in a rapid deterioration of water qual- expanding their utilization of nonconventional ity. According to their level of income, GCC water resources (such as desalination and water countries still face challenges to improve overall recycling) can reduce water availability risks. water quality (Figure 48). The expansion of wastewater reuse is contin- gent on a country’s financial and development GCC countries have arid climates and high capacity to invest and build water infrastruc- evaporation rates, leading to high exposure ture that can augment its existing water sources to water scarcity (Figure 49). Rapid urban- with nonconventional water supplies. However, ization and increasing living standards in these the GCC region must take decisive actions for countries further strain water resources. This future water security amidst climate change. means that effective drought management is Securing water and energy for the roughly 60 essential to reduce welfare loss (Qureshi 2020). million inhabitants, with escalating tempera- Policymakers must prioritize the development tures and droughts, is increasingly costly. of sustainable water management practices. Benchmarks of Environmental Performance Index FIGURE 48 (EPI) of Water Quality 100 100 80 80 60 60 40 40 20 20 0 0 ica a c Cen rica rth sia ca n ain bia es it a Asi Asi ea wa eri Om ci ira Qa Afr A Ara rib f h A uh Am E s a&P ra K rop orth B di Ca bE aa So a& N Sa Ara No Sa e& t& ric Mi E st b- d ite me Su nA le U E dd La Note: EPI =100 highest water quality. Source: CLEAR Framework, World Bank 2024. 64 CHAPTER 4 GULF ECONOMIC UPDATE GCC countries could improve the economic stant aridity must have higher values to show return per unit of water used, since tempera- water resources are being used in a cost-effec- ture increases will reduce the availability of tive way. This ratio can be especially valuable water resources in the future. Compared to in water-intensive industries (for example, ag- other regions that are wetter, GCC countries riculture or manufacturing) as a measure of have similar levels of cost-effectiveness of wa- sustainable and profitable water use. Overall, ter use. The ratio of water productivity and this ratio provides a way to evaluate whether water efficiency (in USD per m3) shows that investments in water use and conservation the GCC and the rest of the world have similar are delivering proportional economic value; economic values against each dollar spent on the GCC has much more potential to increase water (Figure 50). The countries facing con- these ratios. FIGURE 49 Exposure to drought risk between all regions and GCC countries 6 6 5 5 4 4 3 3 2 2 1 1 0 0 a c ca a a ia No rica ica ain it n bia es a Asi ea wa eri s Om ci ira Qa Afr hA Ara rib Af h Am &P ra K rth B u di Ca bE Cen So rth sia a& Sa Ara No dd -Sa tA e& t& ric d Es b Es rop ite me Su nA le U E Mi La Note: 10= highest drought risk exposure. Source: CLEAR Framework, World Bank 2024. FIGURE 50 Ratio of productivity and water use efficiency ($ / cubic meter) 4 4 3 3 2 2 1 1 0 0 bia n es ain it a & Asia aa c le orth ica ica Cen ica a a Asi a wa Om be ci ira Qa Afr t & mer e & Afr Ara h h E s Ca ri P ra K rop orth B A me Sou di Su ia & bE N Sa Ara s Sa tA N ric b- d Es ite nA U E dd Mi La Source: CLEAR Framework. World Bank 2024. 65 CHAPTER 4 GULF ECONOMIC UPDATE The water withdrawal-to-availability ratio GCC countries, however, stand out for their in GCC countries highlights intense com- relatively high rates of wastewater treat- petition for scarce freshwater resources, ment compared to other Asian nations (Fig- often resulting in unsustainable usage pat- ure 51). This difference reflects divergent wa- terns. Groundwater abstraction in the region ter use priorities: while many Asian countries significantly exceeds natural recharge rates, allocate more water to agriculture or industry, leading to the depletion of reserves and the de- GCC nations focus heavily on municipal and terioration of groundwater quality. This trend domestic needs. This prioritization aligns with underscores the urgent need for sustainable their socio-economic context and water scarcity water management practices. challenges. Selected indicators of water resources of GCC FIGURE 51 countries compared to Asian countries 100 94.67 80 60 61.67 40 37.96 20 13.28 11.76 5.06 0 Proportion of domestic wastewater flow Share municipal water withdrawal Share methane emissions in wastewater (safely) treated (% of total wastewater) (as % of total withdrawal) (% of total CH4 emissions) Note: Green=Asia (China, Indonesia, Philippines, Vietnam), Yellow=GCC average. Source: CLEAR Framework. World Bank 2024. Performance and Public Expenditures of Water and Sanitation Services The GCC countries can be a global leader in of the water sector. This is a worldwide issue: promoting technologies, financial reform, on average about 28 percent of water budgets and investment to address global water se- globally go unspent annually. Under stressed curity challenges. Globally, expenditures on water resources worldwide, these inefficiencies, water services reaching approximately $164.6 along with optimizing utility operations and billion. This sum falls significantly short of improving investment execution, could save the funding required to meet the Sustain- billions and significantly close funding gaps. able Development Goals (World Bank 2024b). Some technologies of water reuse and desali- Low-income countries face severe shortfalls, nation can help many countries tackle water with regions like Sub-Saharan Africa needing stress. Moreover, financial reforms in water to increase their spending 17-fold to meet water spending and financing can open up opportu- and sanitation targets. A key challenge for the nities to implement such technologies in many GCC is to increase the budget execution rate parts of the world. 66 CHAPTER 4 GULF ECONOMIC UPDATE All GCC countries have reliable data on water footprints. This dependency poses sustain- and sanitation services in healthcare facili- ability challenges as energy prices fluctuate. ties (Figure 52), where access to the services Such challenges may impose restrictions on is almost universal (WHO-UNICEF 2024). investments in the sectors or diminish their GCC countries have achieved near-universal effectiveness. As such, improving efficiency access to safe drinking water and basic sanita- in public expenditure and expanding private tion services to households, schools and health sector engagement for service delivery in GCC care facilities. This represents a significant countries may reduce budgetary and invest- accomplishment compared to other regions. ment risks. Urban areas, in particular, benefit from reliable and high-quality services due to substantial The total investment in unconventional investments in infrastructure​ . The region has sources of water supply, like desalination developed sophisticated wastewater treatment plants, across the GCC has increased over facilities. The UAE and Qatar, for example, the last few years. Such investments are ex- treat a high percentage of their wastewater, panding recently because of the need to secure with much of it meeting tertiary standards​. water supplies in the face of rising demand and dwindling natural resources (Salem et al. Water and sanitation services in the GCC 2021). This investment trend is indicative of a countries nonetheless face challenges. The broader pattern where GCC governments pri- GCC has some of the highest per capita water oritize water security as part of their national consumption rates globally, driven by subsi- development agenda. dies and cultural practices. This exacerbates stress on resources and infrastructure. While In GCC countries, government spending on wastewater treatment is advanced, reuse rates water is often influenced by broader eco- remain relatively low (averaging about 35 per- nomic conditions, particularly the volatil- cent), representing missed opportunities for ity of oil prices, which can impact overall water conservation. In some cases, treated budget allocations (Saxena & Al-Hadrami water is discharged rather than reused for 2017; Ganguli 2016). As GCC nations seek to agriculture or landscaping. diversify their economies away from oil, there is a growing recognition of the need to align Water utilities in GCC countries lag in terms water resource management with economic of operational efficiency and high non-rev- diversification (Saxena & Al-Hadrami 2017; Gan- enue water (e.g., due to leaks) compared to guli 2016). This shift is crucial as it can lead to developed countries. Desalination and water more sustainable water usage and improved distribution are energy-intensive, contributing efficiency in water delivery. to high operational costs and significant carbon FIGURE 52 GCC countries and worldwide estimates of water and sanitation services in health care facilities 0 - 25 25 - 50 50 - 75 75 - 99 >99 Insufficient data Not applicable Source: UNICEF/WHO 2024. 67 CHAPTER 4 GULF ECONOMIC UPDATE The water sector’s public expenditure in arid conditions require vast capital invest- GCC countries is high compared to other ments and high recurrent costs. Part of the regions, but improvements can still be made. reason why the GCC countries’ per capita ex- GCC countries invest heavily in water infra- penditure on water is higher compared to the structure, particularly in desalination plants, rest of the world (Table 3) is because desalina- which are essential to supplement their scarce tion accounts for most municipal water supply. freshwater resources. On a per capita basis, But these facilities have high operational and for instance, the GCC on average spends more maintenance costs relative to global averages than double than high-income countries when In addition, water supply systems in the GCC it comes to water supply and sanitation. Due to are highly subsidized. Tariffs are often far be- arid conditions, supplying water and sanitation low the production costs, leading to limited is a difficult task. cost recovery. This results in financial ineffi- ciencies that are less pronounced in other re- Many technologies and interventions that gions, where water tariffs tend to better reflect are needed to extract and manage water in operational costs. TABLE 3 Comparison of Water Expenditures with other development sectors by region Per Capita Percent of Expenditure Per Capita Per Capita GDP spent Ratio of in Water Expenditure Expenditure Ratio of Regions on Water and Education to Supply and Education in Health Health to WSS Sanitation WSS Sanitation (USD 2017) (USD 2017) Services (USD 2017) GCC 0.72% $104.25 $548.02 $411.44 5.3 3.9 Countries Middle East and 0.53% $29.69 $211.98 $189.89 7.1 6.4 North Africa High Income 0.31% $42.05 $564.00 $537.82 13.4 12.8 (FY25) Rest of the 0.25% $12.72 $207.98 $143.90 16.3 11.3 World Source: World Bank 2024. Note: GCC data available only for Bahrain, Oman and Saudi Arabia 68 CHAPTER 4 GULF ECONOMIC UPDATE FIGURE 53 Rates of public sector execution GCC MENA region 100 97% 92% 85% 80 74% 62% 67% 50% 60 48% 40 20 0 Total Expenditure Execution Execution of Expenditures Execution of Expenditures Execution of Expenditures in Infrastructure in Water Sector in Social Protection, Health and Education Source: World Bank, 2024. PER Dashboard. Compared to water sector expenditures in the public sector can maximize the use of ex- other regions, GCC countries often spend penditures in the sector to deliver water and more per capita on water infrastructure sanitation services to multiple users. To bridge than many developing nations. GCC coun- financing gaps, some examples of innovative tries struggle with water sustainability and financing mechanisms, including blended pub- efficiency. For instance, in regions with more lic-private partnerships (PPPs) and increased abundant water resources, such as parts of private sector involvement from GCC could be Europe and North America, the focus tends valuable for low- and middle-income countries. to be on maintaining existing infrastructure The UAE has implemented several PPP proj- and improving water quality rather than on ects in the water sector. The Taweelah Reverse large-scale investments in new technologies. Osmosis Independent Water Project (IWP) in Abu Dhabi is a significant example. This project In any case, the GCC could improve the ef- has involved the construction and operation ficiency of expenditure in water and sani- of a large-scale desalination plant by a private tation. This is because, although on average consortium, ensuring a sustainable and reliable the overall rate of water sector’s execution for water supply for the region. Oman has also GCC countries is higher than the Middle East embraced PPPs in the water sector. The Sohar and North Africa region, it is still far from the Independent Water Project is a key initiative rates of execution in sectors like education and where the private sector is involved in the devel- social protection (Figure 53) opment and operation of a desalination plant. This project aims to meet the growing water Increasing spending efficiency in the GCC’s demand in the Sohar region through private water sector can expand investments. With sector expertise and investment. strong private sector funds and involvement, 69 CHAPTER 4 GULF ECONOMIC UPDATE PART IV Policies and innovations to deal with water scarcity Water scarcity in the GCC countries de- ising avenues to reduce energy consumption in mands innovative policy interventions. desalination processes. Saudi Arabia’s NEOM Drawing from global experiences and recent project exemplifies this approach, aiming to reports, several key areas are identified here to produce green hydrogen-powered desalination. address the region’s water challenges. These The integration of renewable energy sources in strategies align with global best practices. They desalination plants is also gaining traction, with offer an approach that ensures long-term water the UAE’s Masdar implementing solar-powered security in the GCC countries. desalination pilot projects. To further advance these technologies, GCC countries should in- Advanced desalination technologies are vest in research and development, develop crucial for sustainable water management regulations promoting renewable energy use in GCC countries. As global leaders in desali- in desalination, and establish public-private nation, GCC countries are driving innovation. partnerships for technology development and Energy-efficient technologies, such as forward implementation (Ghaffour et al., 2022). osmosis and membrane distillation, offer prom- BOX 5 Energy Consumption and Innovation in Saudi Arabia’s Water Sector Saudi Arabia’s water sector faces significant energy challenges, but recent innovations are improving efficiency. In 2023, the total energy consumption for water production and distribution reached 8.7 million megawatt-hours (MWh), which represents approximately 9 percent of the country’s total electricity production. Desalination plants accounted for 65 percent of this energy use, consuming about 5.6 million MWh annually, while groundwater pumping consumed an additional 2.1 million MWh, or 24 percent of the total energy utilized within the sector (Saudi Water Authority 2024). Recent technological advancements are significantly improving energy efficiency in desalination. The latest commissioned desalination plant in Saudi Arabia, Shoaibah – 5 with a production capacity of 664,490 per day, have achieved energy consumption rates of 2.34 kWh per cubic meter of water produced with a salinity level of 42500 mg/l, a substantial improvement compared to older facilities that typically consumed between 4 and 5 kWh per cubic meter. Key developments include advanced reverse osmosis membranes that require less pressure and energy, energy recov- ery devices that capture and reuse pressure from the desalination process, and improved pre-treatment systems that reduce fouling and extend membrane life. Additionally, the integration of renewable energy sources, particularly solar power, is helping to offset grid electricity use. The Saudi Water Authority has set ambitious targets to enhance sustainability in the water sector. Specifically, there is a goal to reduce energy intensity by 30 percent by 2030 compared to 2019 levels. Achieving this target will require sustained commitment to technological innovation and policy implementation. These advancements not only reduce operational costs but also align with broader sustainability objectives, providing valuable lessons for other wa- ter-scarce regions globally. The circular economy can maximize water value creation from waste streams. To promote efficiency in the GCC region. Expanding the circular economy approaches, GCC countries use of treated wastewater in agriculture, indus- should develop comprehensive water reuse try, and urban landscaping is a key strategy. guidelines and standards, implement incen- Oman’s Haya Water company has successfully tives for water recycling and resource recov- implemented a water reuse program, setting ery in industries, and launch public awareness an example for the region. Resource recovery campaigns to promote acceptance of recycled from wastewater, such as extracting energy water. Despite advanced wastewater treatment and nutrients, presents another opportuni- capacities, only about 35 percent of treated ty. Saudi Arabia’s National Water Company wastewater is reused in the GCC, reflecting is exploring biogas production from sewage missed opportunities for water recycling. In treatment plants, illustrating the potential for comparison, other arid regions, such as Aus- 70 CHAPTER 4 GULF ECONOMIC UPDATE tralia and parts of the United States, achieve job opportunities and economic growth within higher rates of wastewater reuse for industrial the sector. Technological advancement and and agricultural purposes sustainable practices can generate new employ- ment opportunities in agriculture and water Digital technologies offer significant poten- management sectors. This helps diversify job tial for improving water management in GCC markets in countries that may otherwise rely countries. Smart metering systems, such as on oil, gas, or other limited sectors. those implemented by the Dubai Electricity and Water Authority (DEWA), can help detect leaks Technology can contribute to reducing water and reduce non-revenue water. Artificial intel- footprints and waste of the industrial and ligence and predictive analytics can optimize services sectors in GCC countries. Technol- demand forecasting and infrastructure main- ogy is transforming the GCC’s manufacturing tenance. Using such digital investments, Dubai sector. With the adoption of advanced tech- was able to achieve a remarkable non-revenue nologies, such as artificial intelligence— often water of less than 3 percent. Kuwait’s Minis- referred to as “Industry 4.0” — the sector is try of Electricity and Water has implemented becoming more interconnected, more auto- AI-powered water network management sys- mated and more data-driven than ever before. tems, demonstrating the region’s capacity for Currently, industry stakeholders in GCC are technological adoption. To fully leverage these adopting technologies like large-scale reverse technologies, GCC countries should develop osmosis (RO) desalination, smart grids, and national digital water strategies, invest in dig- metering to increase existing supply and pro- ital infrastructure and workforce training, and duction capacity, to create a resilient and sus- establish robust data sharing protocols and tainable water supply system for the future, cybersecurity measures (World Bank 2024). which is driven by data efficiency. Sustainable agriculture is critical for reduc- Also, groundwater management is essential ing water consumption in the GCC region. As for long-term water security in GCC coun- the largest water consumer in GCC countries, tries. the agricultural sector requires targeted inter- ventions to improve water efficiency. Precision GCC countries face critical water challenges. agriculture techniques, including drip irriga- The combination of arid climate, high tem- tion, soil moisture sensors, and crop selection peratures, and rapid economic and population optimization, can significantly reduce water growth exacerbates these challenges, making consumption. The UAE’s Food Tech Valley ini- water resource management a key priority tiative promotes water-efficient agricultural for the region. This is illustrated through the technologies, serving as a model for the region. example of Saudi Arabia, where the largest Vertical farming and controlled environment proportion of water resources are used for agri- agriculture, such as Saudi Arabia’s Red Sea cultural irrigation sourced from non-renewable Farms project, offer innovative solutions for groundwater. As shown Figure 54, projections reducing water use in food production. Policy of nonrenewable groundwater withdrawals will measures to support sustainable agriculture increase by 11 percent and 56 percent by 2030 should include providing incentives for wa- and 2060, respectively, relative to 2015 levels ter-efficient irrigation technologies, develop- under three management scenarios (World ing agricultural extension services focused on Bank, 2024). Given the large volumes of water water conservation, and implementing water used for agriculture, these results highlight pricing reforms to reflect true costs and en- that the irrigation sector provides opportuni- courage efficiency (FAO, 2021). ties for substantial reductions in total water withdrawals and nonrenewable groundwater Adopting efficient irrigation systems (like sustainable management, as well as the value drip irrigation) and climate-smart agricul- of early implementation of groundwater man- ture can stimulate investment in agricultural agement strategies in helping keep the ability technology. This can lead to innovation hubs of Saudi Arabia’s groundwater reserves to around water-saving tech, potentially creating provide a long-term water source. 71 CHAPTER 4 GULF ECONOMIC UPDATE 72 Total Water Withdrawal by Sector (Km ) Total Water Withdrawal by Sector (Km ) Total Water Withdrawal by Sector (Km ) 0 5 10 15 20 25 30 35 40 0 5 10 15 20 25 30 35 40 0 5 10 15 20 25 30 35 40 FIGURE 54 CHAPTER 4 2010 2010 2010 Livestock Municipal Electricity 2015 2015 2015 2020 2020 2020 2025 2025 2025 2030 2030 2030 Municipal Electricity 2035 2035 2035 Manufacturing Reference 2040 2040 2040 Moderate 2040 Optimistic 2030 2045 2045 2045 2050 2050 2050 2055 2055 2055 2060 2060 2060 Total Water Withdrawal by Sector (Km ) Total Water Withdrawal by Sector (Km ) Total Water Withdrawal by Sector (Km ) across water resources management scenarios 0 5 10 15 20 25 30 35 40 0 5 10 15 20 25 30 35 40 0 5 10 15 20 25 30 35 40 2010 2010 2010 Renewable 2015 2015 2015 Groundwater Deasalination Projected total water withdrawals by sector and by source 2020 2020 2020 2025 2025 2025 2030 2030 2030 2035 2035 2035 Reference 2040 2040 2040 Moderate 2040 Optimistic 2030 2045 2045 2045 2050 2050 2050 2055 2055 2055 2060 2060 2060 GULF ECONOMIC UPDATE Nature-based solutions offer sustainable, adapt approaches that are feasible and offer cost-effective approaches to water manage- flexibility by combining built (grey) and natural ment in the GCC. In water-scarce countries (NbS: nature-based solutions) infrastructure. such as those in the GCC region, infrastruc- This will feasibly enable them to increase the ture for water resources management can be reliability of water supply. Table 4 summarizes effectively integrated with environmental con- some innovation opportunities in using NbS siderations for managing the water cycle in a towards sustainability and adaptation in the more efficient and sustainable way. Accordingly, water sector, by itself or in combination with to address climate change and improve water gray infrastructure. resources management, GCC countries should TABLE 4 Potential application of Nature-based Solutions towards water security and climate adaptation in the water sector Water sector adaptation challenges Nature based Solutions (NbS) Water Scarcity Groundwater River flows Droughts recharge Targeted land protection (including land purchase) Revegetation (including re/afforestation) Riparian restoration (including riparian buffers) Removal of invasive species Natural aquifer recharge Reconnecting rivers to floodplains Wetlands restoration / conservation Construction of artificial wetlands Green spaces (bioretention and infiltration) Permeable pavements Establishing flood bypasses Agriculture Best Management Practices (BMP) Cover crops Change in crops, crop rotation Reduced use of chemical fertilizers Change in pest control methods Forestry Best Management Practices (BMP), including forest fuel reduction Ranching / Grazing Best Management Practices (BMP) Notes: The shaded boxes indicate that these NbS can play a role in alleviating the relevant water pressure. Source: adapted from UNEP/DHI, IUCN and TNC, “Green Infrastructure: Guide for Water Management” and TNC, “Beyond the Source”. 73 CHAPTER 4 GULF ECONOMIC UPDATE Regional cooperation is crucial for addressing shared water challenges in the GCC. In the GCC region, water resources and par- on the region’s diminishing water supplies. ticularly the nexus between water, energy and food is relevant for the region’s sus- This regional context opens up new oppor- tainability, security, and growth. Countries tunities for cooperation among GCC coun- in this region are arid to semiarid, with many tries on water resources management. This areas already facing water stress and a highly cooperation can be focused on such issues as variable precipitation rate due to their geo- the following: 1) the implications of water re- graphic and climatic conditions. Nonetheless, use — particularly wastewater recycling — as they have generally been successful in satis- a source of future water supply and its effect fying their citizens’ needs through ambitious on urban services as well as food and energy dam building, groundwater extraction, leakage security; 2) the effects of sudden extreme events reduction, conservation, desalination, not to or shocks of physical or socioeconomic nature; mention water reuse and water transfers. But 3) the repercussions of removing existing dis- per capita supply is declining. This is due to the tortions (that is, subsidies) in water availability growing population, increasing urbanization, and distribution; and 4) the economic costs and extended irrigated agriculture, including of inaction and non-cooperation compared to highly water-intensive crops. There is also the the potential benefits of cooperation across development of the industrial and the tour- the region. ism sectors. This decline in per capita supply has increasingly pushed the region to think of Cooperation may also help quantify tradeoffs ambitious desalination plans to supply water in water availability and its impact on major to coastal cities and agricultural areas and to economic sectors, define effective adapta- explore the possibility of large transfers of wa- tion policies that are necessary to mitigate ter to the region. These options (desalination, the impact of climate change on water se- reuse and water transfers) require relatively curity, and plan key water investments at larger large amounts of energy, mainly electric- regional and country levels. Working together ity. At the same time, agriculture plus the com- could also engender policies that meet sectoral bined effects of population growth, increasing needs in a manner consistent with regional hydrological variability and climate change, are goals of environmental sustainability. expected to continue to pose major pressures 74 CHAPTER 4 GULF ECONOMIC UPDATE There is an additional incentive for regional Finally, regional cooperation in management cooperation. Results from a regional study by of the growing quantities of brine that are the World Bank (2018) illustrate the implica- a by-product of the desalination processes tions of constraining water demand on losses could generate new markets, investment in agricultural export revenues from the re- opportunities and global expertise of GCC gion and needed investments in electricity for countries. The regional cooperation is import- desalination water supply (Figure 55). There ant as the environmental risk (reducing marine is a clear financial case for GCC countries to biodiversity due to increased levels of ocean cooperate in investments and management salination) requires collective action and strong of water supply boosting alternatives, particu- commitments to address desalination environ- larly wastewater reuse, desalination and water mental and economic externalities between and transfers as needed. within countries. Implications of reduced demand on agricultural revenue losses and FIGURE 55 needed investments in electricity 2500 Agriculture Water Unlimited Water Limited 2000 in agric (billion 2010$) Cumulative losses 1500 700 1000 600 500 35–40% 0 500 Tot withdrawal (billion m3/yr) 2000 2050 2100 400 200 Energy 300 150 Cumulative investment in electricity ($billions) 200 100 100 50 0 0 2000 2050 2100 2000 2050 2100 75 CHAPTER 4 GULF ECONOMIC UPDATE Conclusion Managing water as a strategic resource in and technology—sectors that require less water GCC countries requires significant policy and generate higher-value jobs—can absorb shifts and targeted interventions in agricul- displaced agricultural labor. Many countries ture. These changes may impact employment have successfully used small and medium en- and the broader economy but are essential for terprises (SMEs) in non-agricultural sectors to addressing water security challenges. Ensuring cushion employment losses from agricultural water security involves reducing water stress reforms. Reorienting agricultural subsidies while meeting human, economic, and environ- to support water-efficient practices and facil- mental needs. Redirecting investments toward itate non-agricultural employment creation is more water-efficient sectors that generate another practical policy option. employment opportunities could offset the economic costs associated with perpetuating The Gulf Cooperation Council countries have highwater consumption in agriculture. certainly put economic diversification at the forefront of their development agenda. And A critical first step is for GCC countries to they have been resilient to global disruptions invest in water-saving technologies and ad- running from energy markets to geopolitical vanced irrigation systems, such as drip and tensions. But as they advance their diversifica- precision irrigation, to optimize water use tion strategies and strengthen their resilience, in agriculture. Difficult policy decisions in this water security remains a critical issue that could sector could also help alleviate water stress make or break their progress. Given that these while preserving employment and economic countries are in an arid and semiarid region, benefits. For instance, prioritizing less water-in- water scarcity is a problem already built into tensive crops and high-value agricultural prod- their geography. But though there is not much ucts suited to arid conditions can reduce water they can do about their geography, there is demand. Similarly, introducing water pricing plenty they can do about their water. mechanisms that reflect the scarcity of water would encourage conservation, particularly From an efficiency perspective, scaling back among large-scale agricultural producers, while export-oriented agriculture is more sustain- minimizing employment impacts. able for GCC economies due to the unsus- tainable water footprint of such activities. Structural reforms in the agriculture sector However, non-economic factors—such as food are also crucial to minimizing the impact on security, potential welfare losses, and nation- food security. Reducing the scale of water-in- al productivity considerations—may compel tensive, export-oriented agriculture and relying governments to maintain these sectors. Ex- more on global markets for food imports could port-oriented agriculture could also exacerbate significantly lower the agricultural water foot- tensions by straining transboundary water re- print of GCC countries. However, balancing this sources, a significant concern given the region’s with strategies for food sovereignty is essential. limited water endowments. Localizing the production of strategic crops for national food security, rather than focusing on Since agriculture is the largest water con- export-oriented farming, represents a feasible sumer in GCC countries, there is a need to medium-term policy shift. support sustainable agriculture. This sup- port, as already indicated, should include pro- Since addressing water stress in agriculture viding incentives for water-efficient irrigation could reduce employment and economic val- technologies, developing water-conserving ag- ue added, redirecting investments to oth- ricultural extension services, and implementing er productive sectors is a vital mitigation water pricing reforms that reflect true costs strategy. Diversifying the economy to reduce and encourage efficiency (FAO 2021). dependence on agriculture not only alleviates water stress but also opens new avenues for job As detailed in this Gulf Economic Update’s creation. For example, investing in industries special focus on water, meaningful invest- such as renewable energy, logistics, tourism, ments have to be made in finding innovative 76 CHAPTER 4 GULF ECONOMIC UPDATE solutions and strategic investments to offset certain implications of shifting policies to enhance water security. These solutions in- clude desalination and demand management strategies, strategies that have a proven re- cord of alleviating water stress. As discussed earlier, the GCC countries are already leaders in desalination technologies. Moreover, they have also developed ambitious plans to harvest renewable energy, as exemplified by the King- dom of Saudi Arabia’s aim to achieve net-zero greenhouse gas emissions by 2060, a target that is part of the Saudi Green Initiative. Novel lessons can be drawn from such leadership to meet the current moment of rapid population growth and climate change. there is more to be done to meet the current moment of rapid population growth and climate change. This is especially true when it comes to the promotion of renewable energy use in desalination, or what may be called ‘sustainable desalination’, the establishment of viable public-private partner- ships, and championing cutting-age research and development (Ghaffour et al., 2022). Finally, besides other interventions such as regional cooperation, which is surely needed to find inclusive water solutions, nature-based solutions are also paramount. This is because, as climate change intensifies, applying solutions that are nature-based could help mitigate water stress while also addressing climate change. Although solutions such as those mentioned here are hardly a panacea, used collectively, they can make a difference. And since water is the new oil, GCC countries have an opportunity to tackle such issues as population growth, rapid urbanization, and climate change in ways that will fuel their econ- omies for ages to come — if they put water at the center of their policy objectives. 77 CHAPTER 4 GULF ECONOMIC UPDATE References Recent Developments Arab Times. (2024, June 5). Proposal seeks to double citizens in private sector. URL: https:// www.arabtimesonline.com/news/proposal-seeks-to-double-citizens-in-private-sector/ Emirates News Agency. (2022, May 9). UAE Cabinet increases Emiratisation rate to 2% annual- ly. 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Consumption, Contr to Growth % 0.4 1.5 0.9 0.3 0.9 0.7 GCC, Fixed Investment, Contr to Growth % 1.6 3.3 1.2 1.2 1.2 1.2 GCC, Net Exports, Contr to Growth % -0.1 2.2 -3.2 -1.8 0.7 1.0 GCC, Current Account Balance, %GDP 8.5 16.1 8.5 7.1 7.7 8.4 GCC, Fiscal Balance, %GDP -1.1 6.7 0.6 -0.1 -0.1 -0.2 ANNEX 2 Country Summary Tables Key Economic Indicators Country Summary Tables Bahrain Selected Economic Indicators 2021 2022 2023 2024E 2025F 2026F Real GDP growth, at constant market prices 4.4 6.0 3.0 3.5 3.3 3.3 Private Consumption 5.8 6.9 4.9 5.1 5.3 4.1 Government Consumption 7.0 2.1 7.3 4.2 4.4 3.5 Gross Fixed Capital Investment -3.3 18.7 2.1 4.1 5.0 5.5 Exports, Goods and Services 29.5 9.2 -9.1 -6.0 4.2 4.2 Imports, Goods and Services 15.2 11.9 2.6 2.4 3.1 2.7 Real GDP growth, at constant factor prices 4.2 4.5 3.0 3.5 3.3 3.3 Agriculture 7.2 4.4 4.7 2.2 3.1 2.8 Industry 3.9 1.7 -0.4 2.4 3.9 4.1 Services 4.5 6.7 5.4 4.3 2.9 2.8 Inflation (Consumer Price Index) -0.6 3.6 0.1 1.3 1.5 2.0 Current Account Balance (% of GDP) 6.4 14.6 5.9 7.3 6.7 5.5 Net Foreign Direct Investment, Inflow (% of GDP) -4.2 0.0 -12.4 -2.6 -2.7 -2.7 Fiscal Balance (% of GDP) -10.6 -5.4 -10.4 -7.8 -7.4 -7.7 Revenues (% of GDP) 20.1 22.5 22.1 20.7 19.3 18.0 Debt (% of GDP) 127.0 117.4 123.2 128.4 130.0 130.9 Total GHG emissions (ktCO2e) 1.7 4.9 2.9 3.9 4.3 3.1 Source: World Bank, Macro Poverty Outlook, Fall 2024 85 ANNEX GULF ECONOMIC UPDATE Kuwait Selected Economic Indicators 2021 2022 2023 2024E 2025F 2026F Real GDP growth, at constant market prices 1.8 6.3 -3.6 -1.0 2.5 2.7 Private Consumption 3.2 1.8 1.1 1.8 2.5 2.4 Government Consumption 2.9 3.9 1.2 1.5 2.4 2.5 Gross Fixed Capital Investment 3.9 2.2 0.6 2.9 2.6 2.6 Exports, Goods and Services 2.2 12.0 -3.6 -2.5 2.9 3.0 Imports, Goods and Services 5.7 6.3 5.7 2.8 2.9 2.6 Real GDP growth, at constant factor prices 1.8 6.3 -3.6 -1.0 2.5 2.7 Agriculture 0.5 1.1 0.1 0.5 1.2 1.2 Industry 2.2 7.9 0.1 0.7 2.9 2.6 Services 1.4 4.2 -8.8 -3.6 2.1 3.0 Inflation (Consumer Price Index) 3.4 4.0 3.6 3.1 2.7 2.5 Current Account Balance (% of GDP) 23.9 32.4 26.2 21.6 20.2 17.8 Net Foreign Direct Investment, Inflow (% of GDP) -2.5 -2.0 -2.2 -2.3 -2.4 -2.5 Fiscal Balance (% of GDP) -7.2 12.5 -4.8 -5.8 -8.1 -7.9 Revenues (% of GDP) 44.8 55.0 43.5 47.9 49.1 51.2 Debt (% of GDP) 8.6 2.3 11.5 12.7 16.1 14.3 Total GHG emissions (ktCO2e) 6.4 3.9 0.4 3.4 6.2 6.8 Source: World Bank, Macro Poverty Outlook, Fall 2024 Oman Selected Economic Indicators 2021 2022 2023 2024E 2025F 2026F Real GDP growth, at constant market prices 2.6 9.6 1.3 0.7 2.7 3.2 Private Consumption 1.7 9.0 2.8 2.4 3.3 3.1 Government Consumption 5.3 4.0 1.7 2.1 2.3 2.1 Gross Fixed Capital Investment -15.7 2.5 3.1 3.7 4.2 4.4 Exports, Goods and Services 12.2 16.5 1.1 0.7 3.3 3.0 Imports, Goods and Services 13.3 19.6 3.8 3.3 3.7 3.3 Real GDP growth, at constant factor prices 2.7 9.6 1.7 0.7 2.7 3.2 Agriculture 9.5 -8.5 6.9 -4.5 1.5 1.4 Industry 1.2 9.4 0.1 -2.3 2.1 2.3 Services 4.2 10.8 3.4 4.5 3.5 4.2 Inflation (Consumer Price Index) 1.7 2.5 0.9 1.0 1.4 1.6 Current Account Balance (% of GDP) -5.5 5.1 1.4 1.7 2.7 2.3 Net Foreign Direct Investment, Inflow (% of GDP) 4.2 3.9 5.6 3.5 3.6 3.8 Fiscal Balance (% of GDP) -3.2 10.1 6.6 4.9 2.7 3.2 Revenues (% of GDP) 33.3 40.5 32.9 32.1 29.1 29.0 Debt (% of GDP) 61.3 40.1 36.5 35.6 35.0 34.7 Total GHG emissions (ktCO2e) 6.6 6.3 4.7 3.4 4.3 0.5 Source: World Bank, Macro Poverty Outlook, Fall 2024 86 ANNEX GULF ECONOMIC UPDATE Qatar Selected Economic Indicators 2021 2022 2023 2024E 2025F 2026F Real GDP growth, at constant market prices 1.6 4.2 1.2 2.0 2.7 5.5 Private Consumption 3.4 5.2 1.8 3.5 3.5 4.3 Government Consumption 2.8 4.1 1.2 1.2 1.8 2.3 Gross Fixed Capital Investment 2.3 3.1 1.4 2.2 2.1 2.4 Exports, Goods and Services 2.4 4.7 2.0 2.7 3.6 7.2 Imports, Goods and Services 4.7 6.5 4.1 4.7 3.9 3.8 Real GDP growth, at constant factor prices 1.6 4.2 1.2 2.0 2.7 5.5 Agriculture 0.5 6.7 1.5 2.1 2.4 2.9 Industry 0.7 4.2 1.2 2.0 3.3 7.0 Services 3.5 4.1 1.3 2.0 1.3 2.4 Inflation (Consumer Price Index) 2.3 5.0 3.0 1.3 1.9 1.9 Current Account Balance (% of GDP) 14.6 26.8 17.1 14.5 14.1 15.5 Net Foreign Direct Investment, Inflow (% of GDP) -0.7 -1.0 -0.1 -0.7 -0.6 -0.5 Fiscal Balance (% of GDP) 0.2 10.4 5.6 4.2 4.6 6.0 Revenues (% of GDP) 29.7 34.7 32.8 27.8 28.5 29.5 Debt (% of GDP) 58.6 42.5 44.2 37.1 35.7 32.2 Total GHG emissions (ktCO2e) 1.4 3.3 0.9 1.9 2.2 4.0 Source: World Bank, Macro Poverty Outlook, Fall 2024 Saudi Arabia Selected Economic Indicators 2021 2022 2023 2024E 2025F 2026F Real GDP growth, at constant market prices 5.1 7.5 -0.8 1.1 4.8 4.7 Private Consumption 9.5 4.9 5.3 3.3 3.0 3.1 Government Consumption 0.8 9.3 5.7 0.7 4.9 3.5 Gross Fixed Capital Investment 10.5 21.3 5.3 5.0 5.0 5.0 Exports, Goods and Services 5.6 20.5 -6.5 -5.5 6.5 6.3 Imports, Goods and Services 8.3 12.4 9.9 4.3 5.0 4.0 Real GDP growth, at constant factor prices 4.6 8.2 -1.4 1.1 4.8 4.7 Agriculture 2.2 4.0 4.1 2.0 2.0 2.0 Industry 1.7 12.4 -6.0 -3.4 3.4 3.2 Services 7.6 4.5 2.9 5.1 6.1 6.0 Inflation (Consumer Price Index) 3.1 2.5 2.3 2.1 2.3 2.2 Current Account Balance (% of GDP) 4.8 13.7 3.2 2.5 4.3 6.0 Net Foreign Direct Investment, Inflow (% of GDP) 3.2 2.4 2.1 1.1 1.1 1.1 Fiscal Balance (% of GDP) -2.2 2.5 -2.0 -2.9 -2.2 -2.8 Revenues (% of GDP) 29.5 30.5 30.3 30.4 30.5 30.4 Debt (% of GDP) 28.6 23.8 26.2 28.7 29.0 31.1 Total GHG emissions (ktCO2e) 3.1 3.6 4.4 -2.1 0.1 3.1 Source: World Bank staff estimates 87 ANNEX GULF ECONOMIC UPDATE United Arab Emirates Selected Economic Indicators 2021 2022 2023 2024E 2025F 2026F Real GDP growth, at constant market prices 4.4 7.9 3.2 3.3 4.1 4.1 Private Consumption 5.0 9.0 5.1 5.5 3.9 4.0 Government Consumption 1.4 3.5 3.0 3.5 3.0 2.8 Gross Fixed Capital Investment 9.6 6.0 5.9 4.3 3.5 3.3 Exports, Goods and Services 6.8 8.4 3.6 3.5 4.6 4.6 Imports, Goods and Services 8.8 7.4 5.3 4.8 4.1 4.1 Real GDP growth, at constant factor prices 4.4 7.9 3.2 3.3 4.1 4.1 Agriculture 3.8 3.4 3.5 3.5 3.0 3.0 Industry 1.3 8.8 1.2 1.2 4.6 4.5 Services 7.4 7.1 5.1 5.2 3.7 3.8 Inflation (Consumer Price Index) -0.1 4.8 1.6 2.2 2.1 2.0 Current Account Balance (% of GDP) 11.5 11.7 9.2 7.5 7.4 7.3 Fiscal Balance (% of GDP) 3.5 10.8 5.1 4.9 4.7 4.5 Revenues (% of GDP) 30.2 33.6 30.8 30.8 30.0 29.7 Debt (% of GDP) 35.1 31.4 29.6 27.9 26.5 25.3 Total GHG emissions (ktCO2e) 2.5 3.7 -0.8 0.7 0.6 1.0 Source: World Bank, Macro Poverty Outlook, Fall 2024 88 ANNEX GULF ECONOMIC UPDATE