GULF ECONOMIC UPDATE Achieving Climate Change Pledges Spring 2022 Middle East and North Africa Region Gulf Economic Update With a Special Focus Achieving Climate Change Pledges Spring 2022 Middle East and North Africa Region © 2022 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 findings, 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 represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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TABLE OF CONTENTS Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii ‫ملخص تنفيذي‬ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii 1.  Recent Economic Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.  Outlook and Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Special Focus: Achieving Climate Change Pledges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Annex 1. GCC Summary Statistics Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Annex 2. Country Summary Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 Annex 3. The Carbon Circular Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 iii List of Figures Figure 1 Covid-19 Infections Spiked Briefly in December 2021… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 2 … but High Vaccination Roll-out Reduced Severity and Lethality of the Virus... . . . . . . . . . . . . 2 Figure 3 Covid-19 Restrictions Continue to be Removed Despite the Recent Spike… . . . . . . . . . . . . . .2 Figure 4 …with Mobility Data Reaching their Pre-Pandemic Levels in Most Countries… . . . . . . . . . . . . 3 Figure 5 Pre-Pandemic Recovery Achieved in Most of the GCC Countries… . . . . . . . . . . . . . . . . . . . . . 4 Figure 6 …with High Purchasing Managers Index (PMI) Indicating Expansion… . . . . . . . . . . . . . . . . . . .4 Figure 7 GCC Recovery is Robust, but Slower than Comparators… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Figure 8 Recovery Based on Private Consumption Investment and, Increasingly, Net Exports . . . . . . 5 Figure 9 Both Oil and Non-Oil Sectors Drove the Recovery in 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Figure 10 Volatile Oil and Natural Gas Prices are Booming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Figure 11 International Commodity Prices have been Surging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 12 Leading to Higher Inflation in the GCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 Figure 13 Fiscal Balance Improved as Oil Prices Rose in 2021… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 14 Public Debt to GDP Had also Grown in Response to the Pandemic, but Stabilized in 2021 and is Set to Shrink Given Booming Oil Prices . . . . . . . . . . . . . . . . . . . . . . .7 Figure 15 GCC Export Growth Closely Follows Oil Prices… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 16 …with the Current Account Surplus Expanding to pre-Pandemic Levels in 2021 . . . . . . . . . . 8 Figure 17 Despite Diversification Efforts, the Oil Economy Remains Large in Most GCC Countries … . 9 Figure 18 with Non-Hydrocarbon Export Growth Muted in Most GCC States … . . . . . . . . . . . . . . . . . . . . 9 Figure 19 The Conflict Intensified Volatility in Oil Markets… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 20 While Limited Trade between GCC with Russia and Ukraine Controlled Impacts of the conflict... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 21 GCC Growth is Primarily Driven by Hydrocarbon Sector… . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Figure 22 ...with Private Consumption, Investments, and Exports Mainly Contributing to Growth . . . . 13 Figure 23 Individual GCC Countries are Expected to Register Strong Recovery Driven by the Hydrocarbon Sector… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Figure 24 GCC Countries are to Return to Pre-Pandemic Levels by 2022, Except for Kuwait by 2023… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Figure 25 GCC Fiscal Balance is Projected to Register a Surplus in 2022—the First since 2014… 15 Figure 26 ...with All Countries Reporting a Fiscal Surplus Except for Bahrain… . . . . . . . . . . . . . . . . . . . 15 Figure 27.A Overall, Debt-to-GDP is on a Declining Trajectory … . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Figure 27.B However, Government-Related Entities (GREs) Debt Remain a Source of Vulnerability to the Public Sector... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Figure 28 Current Account Balances will Recover Strongly on the Back of Higher Hydrocarbon Exports… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Figure 29 ...with Deficits Persisting in Services Trade Balance and Primary and Secondary Income Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Figure 30 Higher Inflation is Anticipated in Most GCC Countries… . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Figure 31 ...but Tighter Monetary Policy Should Help Reduce Inflationary Pressures . . . . . . . . . . . . . . 18 Figure 32 Big Emissions Cuts Still Needed to Limit Warming to 1.50C . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Figure 33 Per Capita CO2 Emissions – a Long Way to go Still . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Figure 34 All GCC Countries are among the Top CO2 Emitters Per Capita . . . . . . . . . . . . . . . . . . . . . . . 21 Figure 35 Saudi Arabia Amongst the Top 10 CO2 Emitters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Figure 36 GCC Has Potential to Grow Greener . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Figure 37 GCC Emissions Continue to Grow Rapidly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 iv GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES Figure 38 GCC Climate Change Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Figure 39 The Saudi and MENA Green Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 Figure 40 Moving from Brown to Green Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Figure 41 Drivers of GHG Emissions Reduction (in Gigatons) within the Framework of IEA’s 66% 2 °C Scenario – Relative to the New Policies Scenario . . . . . . . . . . . . . . . . . . . . . .26 Figure 42 GCC GHG Emissions by Sector, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Figure 43 Energy Versus Carbon Productivity (2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Figure 44 GCC Countries in the Lowest Quintile for Electricity Prices (2019) . . . . . . . . . . . . . . . . . . . . . 27 Figure 45 Subsidies by Fuel, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Figure 46 Subsidies by Component, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Figure 47 Explicit Energy Subsidies [US$ bn (LHS) and Percent of GDP (RHS)] . . . . . . . . . . . . . . . . . . 30 Figure 48 Solar Costs for Energy Generation have Come Down to around $0.1 Per Kwh . . . . . . . . . . 31 List of Boxes Box 1 Tracking Recent Structural Reforms (Q4 2021/Q1 2022) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9  v ACRONYMS CPI Consumer Price Index OECD Organization for Economic FDI Foreign Direct Investment Co-operation and Development GCC Gulf Cooperation Council OPEC Organization of the Petroleum GDP Gross Domestic Product Exporting Countries GRE Government-Related Entity PMI Purchasing Managers’ Index MENA Middle East and North Africa VAT Value-Added Tax NIF National Infrastructure Fund vii ACKNOWLEDGEMENTS T his report is the product of the Middle East Hussain (Senior Economist, EMNMT) and Ashwaq and North Africa unit in the Macroeconomics, Maseeh (Research Analyst, EMNMT) from the GCC Trade, and Investment (MTI) Global Practice team for their inputs. Special thanks to Ekaterina at the World Bank Group. This issue of the report was Georgieva Stefanova (Senior Program Assistant, prepared by Khaled Alhmoud (Senior Economist, EMNMT) and Muna Salim (Senior Program Assistant, EMNMT) and Jaime de Pinies Bianchi (Senior EMNMT) for administrative support. Economist, EMNMT), with contributions from Xinyue The report was prepared under the direction of Wang (Consultant) under the guidance of Eric Le Issam Abousleiman (Regional Director, GCC). Borgne (Practice Manager, EMNMT). The Special Translation Services by Global Corporate Focus chapter was written by Ismail Radwan (Lead Solutions – Translation and Interpretation (GCSTI). Country Economist) with contributions from Adeel Shahd Alhamdan, Alya S I S Alaskari, and Abbas Syed (Senior Climate Change Specialist, Ashraf Al-Saeed managed cover photography, media SMNDR). The authors are grateful to Sahar Sajjad relations, and dissemination. ix From the Regional Director, GCC Countries Middle East and North Africa Region, World Bank Group ISSAM ABOUSLEIMAN FOREWORD G CC countries experienced strong recovery additional investments to expand hydrocarbon pro- in 2021 despite the continuing presence duction in a bid to support energy security for major of the Coronavirus. Bahrain, Qatar, and the importers, particularly countries with large spare UAE had all fully recovered their pre-pandemic levels capacity such as Saudi Arabia and the UAE. Qatar of growth by the third quarter with Saudi Arabia and Oman are also likely to speed up investments of achieving this milestone by the fourth. natural gas production planned for future years. This While it is premature to discount new potential presents a conundrum since it might delay critical outbreaks of Covid-19, the high vaccination rate in diversification towards a non-hydrocarbon economy the GCC countries holds the promise of lessened in the GCC countries. economic effects from the virus if a new wave hap- Policies geared to boosting competitiveness will pens again. The intense but short-lived Omicron become increasingly important for GCC economies to variant that appeared in December is a case in point. advance private-sector-led economic diversification. Its effects have largely disappeared from the scene These policies include measures to stabilize the real within a matter of a few short months. effective exchange rate, strong supervisory regulation The war in Ukraine and associated economic of key markets to support a level playing field, as well sanctions coming on top of rising energy prices last as continuing labor market and public sector employ- year as the global recovery gathered steam add ment reforms. These are themes which we have further uncertainty to the global economy. It will have commented on regularly in the current and previous significant effects, largely positive, on GCC countries, editions of the Gulf Economic Update. primarily from surging energy prices. The GCC region More broadly, GCC countries face twin chal- is expected to register strong surpluses on both the lenges of how to move to a more sustainable growth fiscal and current account balances in 2022, following model that is less dependent on hydrocarbon and improvements last year. downstream petroleum sectors, while managing the World Bank Staff estimate that GCC economies transition to a global low-carbon economic environ- will grow by 5.9 percent in 2022 and will continue ment that could see oil revenues reduced within the with strong momentum in the medium term driven by next few decades. stronger hydrocarbon and non-hydrocarbon sectors. This will be a recurrent theme of future issues International pressure resulting from the war of the Gulf Economic Update (GEU). In this issue in Ukraine and economic sanctions might trigger we focus on critical first steps towards higher level xi outcomes by revisiting energy subsidies, fiscal con- for an enabling environment that can place the private solidation, and the importance of getting prices right sector at the forefront of the new growth model. xii GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES EXECUTIVE SUMMARY T he Gulf Cooperation Council (GCC) coun- the medium term driven by stronger hydrocarbon and tries were characterized by a robust eco- non-hydrocarbon sectors. For the GCC region, the nomic rebound from the pandemic in net macroeconomic effect of the war and associated 2021 and the beginning of 2022 as well as a par- economic sanctions is projected to be positive. The tial restoration of external and fiscal positions fol- windfall will be registered as strong twin surpluses lowing deep plunges in 2020. COVID-19 infections (fiscal and external) which should help to spur con- spiked in December 2021 with the advent of the Omi- sumer confidence and investments in the GCC. There cron variant. But thanks to the lessened severity and are risks to the outlook from slower global recovery lethality of the Omicron virus strain, as well as the suc- due to the war and inherently from oil sector volatility. cessful high vaccination roll-out, the GCC has been Yet the major opportunity from surging hydrocarbon able to weather the storm and resume strong eco- prices is that it gives the GCC countries a major nomic activity. Easing of pandemic restrictions, and financial advantage to advance their green growth positive developments in the hydrocarbon market strategy and economic diversification. Our Special drove strong recoveries in 2021 across the GCC. Fis- Focus elaborates on this. cal deficits across the GCC markedly improved and The faster and bolder efforts to decar- the GCC external balance is estimated at pre-pan- bonize the global economy, which the war in demic levels for 2021, as energy prices and export Ukraine is likely to speed up, implies that it is earnings strengthened. The 3 percent rebound in critical to invest the windfall in the GCC’s eco- real GDP growth in 2021, however, is relatively muted nomic and environment transition. These global compared to other parts of the world due to the deep developments intensify the urgency to speed up the decline in oil prices witnessed in 2020 and the high diversification of their economies to reduce the risk reliance of GCC economies on the hydrocarbon of their dependence on hydrocarbons, especially as sector. countries around the world are committed to transi- The war in Ukraine is projected to provide tioning to greener development paths and the surge a windfall for the GCC; it has also placed energy in hydrocarbon prices is already drastically hastening security at the forefront of major importers’ this transition in many countries. agenda, which could accelerate the global green Special Focus: Achieving Climate Change growth transition. The GCC is projected to expand Pledges. GCC countries are facing limits to the oil by 5.9 percent in 2022 and to continue recovery over economy on which they have flourished for the last xiii 70 years. GCC countries face twin challenges of to become renewable-energy powerhouses, and the (i) how to move to a more sustainable growth model importance of getting prices right for an enabling that is less dependent on oil and downstream petro- environment that can place the private sector at leum sectors and that can provide valuable jobs for the forefront of the new growth model. The section their inhabitants while (ii) managing the transition to a also highlights the fiscal space that can be created global low-carbon economic environment that could by re-thinking energy subsidies and provides a see oil revenues greatly reduced within the next few political economy sensitive approach to addressing decades. The current situation has sometimes been the concerns of households and industry. Linking portrayed as a threat to the GCC or at the very least the expected savings to investments in renewables as a trade-off between faster growth and climate and incentives for increased entrepreneurship and sustainability. However, this Special Focus section innovative sectors could represent a solution to one reframes the discussion by focusing on the opportu- of the GCC’s greatest challenges, producing high nities for the region to restructure energy subsidies, income jobs for its youth. xiv GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES Key Take Away Charts: Recent Trends in the GCC Economies Most GCC economies achieved pre-pandemic recovery by end 2021… …driven by positive developments in both the oil and non-oil sectors… 110 10 5 Contribution to GDP percent Real GDP (2019Q4=100) 0 100 –5 –10 90 –15 –20 Saudi 2020 Arabia 2021e 2020 2021e 2020 2021e 2020 2021e 2020 2021e 2020 2021e 80 Q4-2019 Q1-2020 Q2-2020 Q3-2020 Q4-2020 Q1-2021 Q2-2021 Q3-2021 Q4-2021 UAE Qatar Kuwait Oman Bahrain Saudi Arabia UAE-Dubai Qatar Kuwait Bahrain Oil Non-oil GDP growth …as restrictions are lifted, and vaccine rollout is a success… …resulting in narrowing fiscal deficits as oil prices rose in 2021… 100 0 –5 Share of population, percent 80 –10 Percent of GDP 60 –15 40 –20 –25 20 –30 0 –35 Saudi UAE Qatar Kuwait Oman Bahrain Kuwait Bahrain Oman Saudi UAE Qatar Arabia Arabia At least one dose Fully vaccinated Fiscal deficit, 2020 Fiscal deficit, 2021e …however, the GCC recovery is slower than comparators… …highlighting the urgency to push forward the diversification agenda… 1.04 1.02 Bahrain UAE Oman 13% Oil 29% Oil 32% Oil Real GDP (2019=1) 1.00 0.98 Saudi 0.96 Arabia Qatar Kuwait 37% Oil 38% Oil 49% Oil 0.94 2019 2020 2021e Advanced economies GCC Oil GDP Non-oil GDP Executive Summary xv ‫ملخص تنفيذي‬ ‫ثقة املستهلكني واالستثامرات يف هذه الدول‪ ،‬لكن مثة مخاطر محدقة‬ ‫بالتوقعات ت ُعزى إىل تباطؤ التعايف العاملي بسبب هذه الحرب‪ ،‬واملخاطر‬ ‫الجوهرية بسبب التقلبات يف قطاع النفط‪ .‬ومع ذلك‪ ،‬تتمثل الفرصة‬ ‫هدت دول مجلس التعاون الخليجي انتعاشاً اقتصادياً قوياً من‬ ‫جائحة كورونا يف عام ‪ 2021‬وأوائل عام ‪ ،2022‬باإلضافة إىل‬ ‫استعادة مراكز املالية العامة والخارجية إىل حد ما يف أعقاب‬ ‫ش‬ ‫الكربى التي يتيحها ارتفاع أسعار الهيدروكربونات يف منح دول املجلس‬ ‫حاالت الهبوط الحادة التي شهدتها تلك الدول يف عام ‪ .2020‬وكان‬ ‫ميزة مالية كبرية لتعزيز اسرتاتيجياتها الرامية إىل تحقيق النمو األخرض‬ ‫معدل انتشار اإلصابة بفريوس كورونا قد شهد ارتفاعاً حادا ً يف ديسمرب‪/‬‬ ‫والتنوع االقتصادي‪ ،‬وسيتناول القسم االخري من هذا التقرير موضوع‬ ‫كانون األول ‪ 2021‬مع ظهور املتحور أوميكرون‪ ،‬إال أنه بفضل طبيعة‬ ‫النمو االخرض بقدر من االستفاضة‪.‬‬ ‫هذا املتحور األقل حدة وفتكاً‪ ،‬باإلضافة إىل النجاح الذي حققته حمالت‬ ‫تشري الجهود الرامية لتخليص االقتصاد العاملي من الكربون‪،‬‬ ‫التطعيم‪ ،‬متكنت دول مجلس التعاون الخليجي من تجاوز تلك العاصفة‬ ‫التي من املرجح أن تزيد الحرب الروسية األوكرانية من رسعتها‪ ،‬إىل‬ ‫واستئناف نشاطها االقتصادي القوي‪ .‬وأدى تخفيف القيود املرتبطة‬ ‫أنه من األهمية مبكان استثامر املكاسب غري املتوقعة لترسيع التحول‬ ‫بالجائحة‪ ،‬والتطورات اإليجابية يف سوق الهيدروكربونات إىل تحقيق‬ ‫االقتصادي والبيئي يف دول مجلس التعاون الخليجي‪ .‬وتزيد هذه‬ ‫تعاف قوية يف عام ‪ 2021‬يف جميع دول املجلس‪ ،‬حيث شهدت‬ ‫حاالت ٍ‬ ‫املستجدات العاملية الحاجة امللحة لزيادة وترية عملية تنويع اقتصادات‬ ‫حاالت العجز يف املالية العامة فيها تحسناً ملحوظاً‪ ،‬وتشري التقديرات إىل‬ ‫هذه الدول بغية الحد من مخاطر اعتامدها عىل الهيدروكربونات‪ ،‬ال‬ ‫أن أرصدتها الخارجية عادت إىل مستويات ما قبل الجائحة يف عام ‪2021‬‬ ‫ول إىل مسارات تنمية‬ ‫سيام وأن البلدان يف جميع أنحاء العامل تلتزم بالتح ّ‬ ‫مع زيادة أسعار الطاقة وإيرادات التصدير‪ .‬وعىل الرغم من ذلك‪ ،‬فإن‬ ‫خرضاء أكرث مراعاة للبيئة‪ ،‬وأن الزيادة الكبرية يف أسعار الهيدروكربونات‬ ‫االنتعاش يف منو إجاميل الناتج املحيل الحقيقي الذي بلغ ‪ 3%‬يف عام ‪2021‬‬ ‫ول بشكل كبري يف العديد من البلدان‪.‬‬ ‫تعمل بالفعل عىل ترسيع هذا التح ّ‬ ‫يُعد ضعيفاً إىل حد ما مقارنة مبا تحقق يف مناطق أخرى من العامل‪ ،‬ويُعزي‬ ‫تركيز خاص‪ :‬تحقيق عهود التغري املناخي‪ .‬تواجه دول مجلس‬ ‫هذا األمر إىل االنخفاض الحاد يف أسعار النفط يف عام ‪ 2020‬واالعتامد‬ ‫التعاون الخليجي قيودا ً عىل االقتصاد النفطي الذي اعتمدت عليه لتحقيق‬ ‫الكبري القتصادات دول املجلس عىل قطاع الهيدروكربونات‪.‬‬ ‫االزدهار عىل مدار العقود السبعة املاضية‪ .‬وهي تواجه تحدياً مزدوجاً‬ ‫ومن املتوقع أن تتيح الحرب يف أوكرانيا مكاسب غري متوقعة‬ ‫يتمثل يف (‪ )1‬كيفية االنتقال إىل منوذج منو أكرث استدامة وأقل اعتامدا ً عىل‬ ‫لدول مجلس التعاون الخليجي‪ ،‬لكنها أيضاً أدت إىل وضع أمن الطاقة‬ ‫قطاعي النفط ومنتجات الصناعات النفطية‪ ،‬وميكنه يف الوقت نفسه أن‬ ‫يف صدارة جدول أعامل املستوردين الرئيسيني‪ ،‬مام قد يؤدي إىل زيادة‬ ‫ول إىل بيئة اقتصادية‬‫يوفر وظائف قيّمة لسكانها مع (‪ )2‬إدارة عملية التح ّ‬ ‫وترية التحول العاملي إىل النمو األخرض‪ .‬ومن املتوقع أن تحقق دول‬ ‫عاملية منخفضة الكربون التي قد تشهد انخفاضاً كبريا ً يف عائدات النفط‬ ‫املجلس منوا ً يف النشاط االقتصادي بنسبة ‪ 5.9%‬يف عام ‪ ،2022‬وأن تواصل‬ ‫خالل العقود القليلة املقبلة‪ .‬يف الواقع‪ ،‬جرى يف بعض األحيان تصوير‬ ‫تعاف عىل املدى املتوسط تحركه القطاعات الهيدروكربونية‬ ‫ٍ‬ ‫تحقيق‬ ‫الوضع الحايل عىل أنه تهديد لدول مجلس التعاون الخليجي‪ ،‬أو عىل األقل‬ ‫والقطاعات األخرى التي تكتسب مزيدا ً من القوة‪ .‬ومن املتوقع أيضاً أن‬ ‫بوصفه مفاضلة بني تحقيق منو أرسع واالستدامة املناخية‪ .‬ومع ذلك‪ ،‬فإن‬ ‫يكون صايف األثر الناجم عن هذه الحرب والعقوبات االقتصادية املرتبطة‬ ‫هذا القسم من التقرير املعنون «تركيز خاص» يعيد صياغة املناقشة عن‬ ‫بها عىل االقتصاد الكيل عىل منطقة دول مجلس التعاون الخليجي‬ ‫طريق الرتكيز عىل الفرص املتاحة لهذه املنطقة إلعادة هيكلة عمليات‬ ‫إيجابياً‪ .‬وستُسجل املكاسب غري املتوقعة بوصفها فوائض مزدوجة قوية‬ ‫دعم الطاقة‪ ،‬وتصبح مراكز للطاقة املتجددة‪ ،‬وإعادة النظر باألسعار وبيئة‬ ‫(للمراكز املالية العامة والخارجية) التي من شأنها أن تساعد عىل زيادة‬ ‫‪xvii‬‬ ‫رسوم بيانية عن االستنتاجات الرئيسية‪ :‬االتجاهات الحديثة يف اقتصادات دول مجلس التعاون الخليجي‬ ‫ﺣﻘﻘﺖ ﻣﻌﻈﻢ اﻗﺘﺼﺎدات دول ﻣﺠﻠﺲ اﻟﺘﻌﺎون اﻟﺨﻠﻴﺠﻲ ﺗﻌﺎﻓﻴﺎً ﺑﻨﻬﺎﻳﺔ ﻋﺎم ‪ 2021‬إﱃ‬ ‫‪ ...‬اﻟﺬي ﺟﺎء ﻣﺪﻓﻮﻋﺎً ﺑﺎﻟﺘﻄﻮرات اﻹﻳﺠﺎﺑﻴﺔ ﰲ اﻟﻘﻄﺎﻋ اﻟﻨﻔﻄﻲ وﻏ اﻟﻨﻔﻄﻲ ‪...‬‬ ‫ﻣﺴﺘﻮﻳﺎت ﻣﺎ ﻗﺒﻞ ﺟﺎﺋﺤﺔ ﻛﻮروﻧﺎ ‪...‬‬ ‫‪10‬‬ ‫‪110‬‬ ‫‪5‬‬ ‫اﳌﺴﺎﻫﻤﺔ ﰲ اﻟﻨﺎﺗﺞ اﳌﺤﲇ اﻻﺟ ﱄ‬ ‫اﺟ ﱄ اﻟﻨﺎﺗﺞ اﳌﺤﲇ اﻻﺟ ﱄ اﻟﺤﻘﻴﻘﻲ‬ ‫‪0‬‬ ‫‪100‬‬ ‫)ﻧﺴﺒﺔ ﻣﺌﻮﻳﺔ(‬ ‫)‪(100=2019‬‬ ‫‪–5‬‬ ‫‪–10‬‬ ‫‪90‬‬ ‫‪–15‬‬ ‫‪–20‬‬ ‫‪2020‬‬ ‫‪2021e‬‬ ‫‪ 2020‬اﻻﻣﺎرات‬ ‫‪2021e‬‬ ‫‪2020‬‬ ‫‪2021e‬‬ ‫‪ 2020‬اﻟﻜﻮﻳﺖ‬ ‫‪2021e‬‬ ‫‪2020‬‬ ‫‪2021e‬‬ ‫‪2020‬‬ ‫‪2021e‬‬ ‫‪80‬‬ ‫‪Q4-2019‬‬ ‫‪Q1-2020‬‬ ‫‪Q2-2020‬‬ ‫‪Q3-2020‬‬ ‫‪Q4-2020‬‬ ‫‪Q1-2021‬‬ ‫‪Q2-2021‬‬ ‫‪Q3-2021‬‬ ‫‪Q4-2021‬‬ ‫ﻗﻄﺮ‬ ‫ﻋ ن‬ ‫اﻟﺒﺤﺮﻳﻦ‬ ‫اﻟﺴﻌﻮدﻳﺔ‬ ‫ُ‬ ‫اﻟﺴﻌﻮدﻳﺔ‬ ‫اﻻﻣﺎرات‪ /‬د‬ ‫ﻗﻄﺮ‬ ‫اﻟﻘﻄﺎع اﻟﻨﻔﻄﻲ‬ ‫اﻟﻘﻄﺎع ﻏ اﻟﻨﻔﻄﻲ‬ ‫ﻮ اﻟﻨﺎﺗﺞ اﳌﺤﲇ اﻻﺟ ﱄ‬ ‫اﻟﻜﻮﻳﺖ‬ ‫اﻟﺒﺤﺮﻳﻦ‬ ‫‪ ...‬ﻣ أدى إﱃ ﺗﻘﻠﻴﺺ ﻋﺠﺰ اﳌﻮازﻧﺎت ﻣﻊ ارﺗﻔﺎع أﺳﻌﺎر اﻟﻨﻔﻂ ﰲ ﻋﺎم ‪... 2021‬‬ ‫‪ ...‬ﻣﻊ رﻓﻊ اﻟﻘﻴﻮد‪ ،‬وﻧﺠﺎح ﺣﻤﻼت اﻟﺘﻄﻌﻴﻢ ‪...‬‬ ‫‪0‬‬ ‫‪100‬‬ ‫‪–5‬‬ ‫‪80‬‬ ‫ﻧﺴﺒﺔ اﻟﻨﺎﺗﺞ اﳌﺤﲇ اﻻﺟ ﱄ‬ ‫‪–10‬‬ ‫ﻧﺴﺒﺔ ﻣﻦ ﻋﺪد اﻟﺴﻜﺎن‬ ‫‪–15‬‬ ‫‪60‬‬ ‫‪–20‬‬ ‫‪40‬‬ ‫‪–25‬‬ ‫‪20‬‬ ‫‪–30‬‬ ‫‪–35‬‬ ‫‪0‬‬ ‫اﻟﻜﻮﻳﺖ‬ ‫اﻟﺒﺤﺮﻳﻦ‬ ‫ﻋ ن‬ ‫ُ‬ ‫اﻟﺴﻌﻮدﻳﺔ‬ ‫اﻻﻣﺎرات‬ ‫ﻗﻄﺮ‬ ‫اﻻﻣﺎرات اﻟﺴﻌﻮدﻳﺔ‬ ‫ﻗﻄﺮ‬ ‫اﻟﻜﻮﻳﺖ‬ ‫ﻋ ن‬ ‫ُ‬ ‫اﻟﺒﺤﺮﻳﻦ‬ ‫ﻋﺠﺰ اﳌﻮازﻧﺔ ‪2020‬‬ ‫ﻋﺠﺰ اﳌﻮازﻧﺔ ﺗﻘﺪﻳﺮي ‪2021‬‬ ‫ﺟﺮﻋﺔ واﺣﺪة ﻋﲆ اﻻﻗﻞ‬ ‫اﻟﺠﺮﻋﺎت ﻛﺎﻣﻠﺔ‬ ‫‪ ...‬ﻣ ﻳﺴﻠﻂ اﻟﻀﻮء ﻋﲆ اﻟﴬورة اﳌﻠﺤﺔ ﻟﺪﻓﻊ أﺟﻨﺪة ﺗﻨﻮﻳﻊ اﻗﺘﺼﺎداﺗﻬﺎ ﻗﺪﻣﺎً ‪...‬‬ ‫وﻣﻊ ذﻟﻚ‪ ،‬ﻓﺈن اﻟﺘﻌﺎﰲ اﻟﺬي ﺗﺤﻘﻘﻪ دول ﻣﺠﻠﺲ اﻟﺘﻌﺎون اﻟﺨﻠﻴﺠﻲ أﺑﻄﺄ ﻣ ﻳﺤﻘﻘﻪ ﻧﻈﺮاؤﻫﺎ ‪...‬‬ ‫‪1.04‬‬ ‫اﻟﻨﺎﺗﺞ اﳌﺤﲇ اﻻﺟ ﱄ اﻟﺤﻘﻴﻘﻲ )‪(1=2019‬‬ ‫اﻟﺒﺤﺮﻳﻦ‬ ‫اﻻﻣﺎرات‬ ‫ﻋ ن‬ ‫ُ‬ ‫‪1.02‬‬ ‫‪ 13%‬ﻧﻔﻂ‬ ‫‪ 29%‬ﻧﻔﻂ‬ ‫‪ 32%‬ﻧﻔﻂ‬ ‫‪1.00‬‬ ‫‪0.98‬‬ ‫اﻟﺴﻌﻮدﻳﺔ‬ ‫ﻗﻄﺮ‬ ‫اﻟﻜﻮﻳﺖ‬ ‫‪0.96‬‬ ‫‪ 37%‬ﻧﻔﻂ‬ ‫‪ 38%‬ﻧﻔﻂ‬ ‫‪ 49%‬ﻧﻔﻂ‬ ‫‪0.94‬‬ ‫‪2019‬‬ ‫‪2020‬‬ ‫‪2021e‬‬ ‫اﻟﻘﻄﺎع اﻟﻨﻔﻄﻲ‬ ‫اﻟﻘﻄﺎع ﻏ اﻟﻨﻔﻄﻲ‬ ‫اﻻﻗﺘﺼﺎدات اﳌﺘﻘﺪﻣﺔ‬ ‫دول ﻣﺠﻠﺲ اﻟﺘﻌﺎون اﻟﺨﻠﻴﺠﻲ‬ ‫املصدر‪ :‬قطاع املامرسات العاملية لالقتصاد الكيل والتجارة واالستثامر‪ ،‬البنك الدويل‪.‬‬ ‫‪xviii‬‬ ‫‪GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES‬‬ ‫الصناعة‪ .‬إن ربط املدخرات املتوقعة باالستثامرات يف مصادر الطاقة‬ ‫األعامل السائدة لتحفز القطاع الخاص وتبني منوذج منو اقتصادي جديد‪.‬‬ ‫املتجددة والحوافز لزيادة ريادة األعامل وقطاعات االبتكارات ميكن أن‬ ‫ويسلط هذا القسم أيضاً الضوء عىل الحيز املايل املتاح يف املالية العامة‬ ‫ميثل حالً للتصدي ألحد أكرب التحديات التي تواجه دول مجلس التعاون‬ ‫الذي ميكن إنشاؤه عن طريق إعادة النظر يف دعم الطاقة‪ ،‬ويوفر نهجاً‬ ‫الخليجي‪ ،‬مام يؤدي إىل توفري وظائف ذات أجور مرتفعة لشبابها‪.‬‬ ‫يراعي ظروف االقتصاد السيايس للتصدي ملخاوف القطاع العائيل وقطاع‬ ‫ملخص تنفيذي‬ ‫‪xix‬‬ 1 RECENT ECONOMIC DEVELOPMENTS1 The recent spike in Covid-19 infections has were reinstituted following the most recent outbreak been short-lived and economic recovery has were less stringent than in previous waves of the resumed in the GCC, buttressed by surging disease (Figure 3) and were rapidly unwound as new commodity prices that will likely boost real GDP. cases plummeted. Bahrain has become the first GCC country not requiring any documentation of testing or Covid-19 infections spiked in December with vaccination to enter the country (as of February 20, the advent of the Omicron variant. All six Gulf 2022) and the UAE now also allows unvaccinated visi- Cooperation Council (GCC) countries (Saudi Arabia, tors to enter the country freely (although still requiring UAE, Qatar, Kuwait, Oman, and Bahrain) were a test). Saudi Arabia and Kuwait also removed the impacted (Figure 1). Thanks to the lessened severity need for PCR testing on entry. and lethality of the Omicron virus strain, as well as High frequency Google Mobility data among the successful high vaccination roll-out (Figure 2), all GCC economies had been steadily recovering however, the GCC has been able to weather the storm in 2021 and by the third quarter broadly reached and resume strong economic activity. Similar to other levels last seen in 2019 before the start of the high-income countries, such as the United States, pandemic (Figure 4). Activity as recorded in mobility new infections at the end of 2021 approached the data, however, was set back in the fourth quarter at low levels seen in the early fall and continue to drop the outset of the new Omicron wave, but this proved rapidly in the first quarter of 2022. to be very short lived. Mobility in the GCC bounced While it is premature to discount new back by the first quarter of 2022 with the exceptions potential outbreaks of Covid-19, the high vacci- nation rate and the corresponding herd immunity 1 The data cut-off for the economic estimates and of the population holds the promise of lessened projections in this report is March 25, 2022. Any data economic effects from the virus if a new wave published after that date will be reported in the next were to happen again. Indeed, the restrictions that edition. 1 FIGURE 1 • Covid-19 Infections Spiked Briefly in FIGURE 2 • …but High Vaccination Roll-out December 2021… Reduced Severity and Lethality of the Virus… Daily new confirmed COVID-19 cases 7-day rolling average. Due to limited testing, the number of conformed 100 cases is lower that the true number of infections. 7.000 80 Share of population, percent 6.000 5.000 60 4.000 40 3.000 2.000 20 1.000 0 0 Mar 1, 2020 Nov 16, 2020 Jun 4, 2021 Mar 20, 2022 Saudi UAE Qatar Kuwait Oman Bahrain Arabia Bahrain United Arab Emirates Kuwait Oman Saudi Arabia Qatar At least one dose Fully vaccinated Source: Johns Hopkins University CSSE COVID-19 Data from Our World in Data. Source: https://ourworldindata.org/covid-vaccinations. of Kuwait and Oman where workplace activity remains FIGURE 3 • Covid-19 Restrictions Continue to Be subdued, but even in these countries retail and recre- Removed Despite the Recent Spike… ation activity has recovered strongly. Bahrain, Qatar, 100 Saudi Arabia, and UAE had reached levels of mobility data last seen in 2019. 80 Rapid vaccine rollout, easing of restrictions, and positive developments in the hydrocarbon market 60 drove strong recoveries in 2021 across the GCC. 40 Official quarterly GDP growth data also shows that three of the GCC countries (Bahrain, Qatar, 20 and UAE) reached their 2019 GDP levels by the third quarter of 2021, closely followed by Saudi 0 Jan 29, Aug 8, Feb 24, Mar 18, Arabia, which achieved parity by the fourth quarter 2020 2020 2021 2022 (Figure 5). Oman is expected to achieve parity in Bahrain United Arab Emirates Kuwait 2022. The Purchasing Manufactures Index (PMI) is Oman Saudi Arabia Qatar also above 50 in Qatar, Saudi Arabia and UAE which Source: Oxford COVID-19 Government Response Tracker. Last updated Mar 18, 2022. implies expansion. The strong performance of Qatar is especially noteworthy as the country completes preparations for the FIFA World Cup in December the end of 2021 (Figure 7). The lag is in part due 2022. to hydrocarbon dependence in the GCC and the fact Despite strong economic recovery, with that oil prices plummeted in 2020 as COVID-19 lock- GDP growth estimated to have reached 3 percent downs became a global phenomenon. The drivers of in 2021, the GCC countries as a group were still growth in the GCC have been predominantly private lagging behind other high-income countries by consumption and fixed investment which are likely to 2 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES –90 –70 –50 –30 –10 10 30 50 –90 –50 –50 –30 –10 10 30 –90 –50 –50 –30 –10 10 30 Qatar Kuwait Feb-20 Feb-20 Feb-20 Mar-20 Mar-20 Mar-20 Apr-20 Apr-20 Apr-20 May-20 May-20 May-20 Jun-20 Jun-20 Jun-20 United Arab Emirates Jul-20 Jul-20 Jul-20 Aug-20 Aug-20 Aug-20 Sep-20 Sep-20 Sep-20 Oct-20 Oct-20 Oct-20 Nov-20 Nov-20 Nov-20 Dec-20 Dec-20 Dec-20 Jan-21 Jan-21 Jan-21 Feb-21 Feb-21 Feb-21 Mar-21 Mar-21 Mar-21 Apr-21 Apr-21 Apr-21 Source: Google COVID-19 Community Mobility Reports. May-21 May-21 May-21 Jun-21 Jun-21 Jun-21 Jul-21 Jul-21 Jul-21 Aug-21 Aug-21 Aug-21 Retail & Recreation Sep-21 Sep-21 Sep-21 Oct-21 Oct-21 Oct-21 Nov-21 Nov-21 Nov-21 Dec-21 Dec-21 Dec-21 Jan-22 Jan-22 Jan-22 Feb-22 Feb-22 Feb-22 Mar-22 Mar-22 Mar-22 Transit Stations –90 –50 –50 –30 –10 10 30 –90 –50 –50 –30 –10 10 30 –90 –50 –50 –30 –10 10 30 Oman Bahrain Feb-20 Feb-20 Feb-20 Mar-20 Mar-20 Mar-20 Saudi Arabia Apr-20 Apr-20 Apr-20 May-20 May-20 May-20 Jun-20 Jun-20 Jun-20 Jul-20 Jul-20 Jul-20 Workplaces Aug-20 Aug-20 Aug-20 Sep-20 Sep-20 Sep-20 Oct-20 Oct-20 Oct-20 Nov-20 Nov-20 Nov-20 Dec-20 Dec-20 Dec-20 Jan-21 Jan-21 Jan-21 Feb-21 Feb-21 Feb-21 Residential Mar-21 Mar-21 Mar-21 Apr-21 Apr-21 Apr-21 May-21 May-21 May-21 Jun-21 Jun-21 Jun-21 FIGURE 4 • …with Mobility Data Reaching their pre-Pandemic Levels in Most Countries… Jul-21 Jul-21 Jul-21 Aug-21 Aug-21 Aug-21 Sep-21 Sep-21 Sep-21 Oct-21 Oct-21 Oct-21 Nov-21 Nov-21 Nov-21 Dec-21 Dec-21 Dec-21 Jan-22 Jan-22 Jan-22 Feb-22 Feb-22 Feb-22 Mar-22 Mar-22 Mar-22 Recent Economic Developments1 3 FIGURE 5 • Pre-Pandemic Recovery Achieved in non-hydrocarbon economy (Figure 9). The non-oil Most of the GCC Countries… private sector is of critical importance in transforming 110 the GCC toward a more sustainable and greener growth model. Diversification toward a sustainable greener economy is an objective which is shared by Real GDP (2019Q4=100) 100 all countries in the GCC, and which is present in virtu- ally all their national development plans (see Special Focus section). The weight of the oil economy in the 90 GCC in the coming years will likely be raised by the extraordinary demands that will be placed on GCC hydrocarbon producers to compensate for Russia’s 80 energy supply, due to the war in Ukraine and its asso- Q4-2019 Q1-2020 Q2-2020 Q3-2020 Q4-2020 Q1-2021 Q2-2021 Q3-2021 Q4-2021 ciated economic sanctions. The price of oil has been rising steadily Saudi Arabia UAE-Dubai Qatar throughout 2021, following the historic lows Kuwait Bahrain recorded in 2020. They have jumped even more Note: Oman does not yet provide quarterly GDP data at constant prices. Figure Haver due to the conflict in the first quarter of 2022, repeat- Analytics. edly breaching US$120 per barrel (Figure 10). The price of natural gas has also risen steeply in Europe remain buoyant even as extraordinary fiscal expendi- where prices have jumped by more than a factor of tures implemented to ease the effects of COVID-19 ten relative to 2020. lockdowns are phased out (Figure 8). Due to the com- Geopolitical tensions have kept energy and modity boom, the GCC economies are likely to make food prices extraordinarily high. Trade and supply up for any lost ground against other high-income chain disruptions caused by the conflict, coupled with countries that occurred due to the pandemic. those induced by the pandemic, from which global In 2021, GCC GDP growth was mostly due markets are still recovering, have led to higher global to the non-oil economy; the exceptions were grain and food prices. Food prices are especially Oman and Qatar where growth was more bal- sensitive given the significant share of global exports anced between hydrocarbon production and the from Russia and Ukraine, which supply nearly 25 FIGURE 6 • …with High Purchasing Managers Index (PMI) Indicating Expansion… 70 60 Below 50 = contraction Above 50 = expansion; 50 40 30 20 Jan/20 Feb/20 Mar/20 Apr/20 May/20 Jun/20 Jul/20 Aug/20 Sep/20 Oct/20 Nov/20 Dec/20 Jan/21 Feb/21 Mar/21 Apr/21 May/21 Jun/21 Jul/21 Aug/21 Sep/21 Oct/21 Nov/21 Dec/21 Jan/22 Feb/22 Saudi Arabia U. A. E. Qatar Source: Whole Economy, IHS Market, Monthly. 4 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES FIGURE 7 • GCC Recovery is Robust, but Slower FIGURE 8 • Recovery Based on Private than Comparators… Consumption Investment and, Increasingly, Net Exports 1.04 4 3 1.02 2 Contribution to GDP, percent 1 Real GDP (2019=1) 1.00 0 –1 0.98 –2 –3 –4 0.96 –5 –6 0.94 2019 2020 2021 2019 2020 2021e GCC, Private Consumption GCC, Govt. Consumption Advanced economies GCC GCC, Fixed Investment GCC, Net Exports GCC, Real GDP growth Source: International Monetary Fund, World Economic Outlook Database, October 2021. Source: World Bank, Macro Poverty Outlook, Spring 2022. FIGURE 9 • Both Oil and Non-Oil Sectors Drove FIGURE 10 • Volatile Oil and Natural Gas Prices the Recovery in 2021 are Booming 10 120 35 5 Contribution to GDP percent 100 30 0 25 80 US Dollar/mmbtu –5 US Dollar/bbl 20 –10 60 15 –15 40 10 –20 20 Saudi 2020 Arabia 2021e 2020 2021e 2020 2021e 2020 2021e 2020 2021e 2020 2021e 5 0 0 UAE Qatar Kuwait Oman Bahrain 2014 2015 2016 2017 2018 2019 2020 2021 2022M1 2022M2 Oil Non-oil GDP growth Crude oil, Brent Natural gas, Europe (rhs) Note: 2021 data for Saudi Arabia is official instead of estimates. Figure Haver Analytics and World Bank, Macro Poverty Outlook, Spring 2022. Source: World Bank Commodity Price Data (The Pink Sheet), March 2022. percent of global wheat exports. As a result, wheat Ukraine stand at 0.8 percent and 0.3 percent of GCC’s prices have doubled since 2020 (Figure 11) and are global trade, respectively. However, Oman, UAE, and at their highest level since April 2011. Qatar have a higher degree of exposure to wheat Overall, the GCC countries are less vulner- imports from Russia and Ukraine, at 58, 53 and 30 able than their MENA countries to disruptions percent, respectively, of their total imports of wheat. and price increases stemming from the crisis. Nevertheless, ample grain storage facilities imply no The region’s overall trade relations with Russia and short-term danger of supply shortages. Recent Economic Developments1 5 FIGURE 11 • International Commodity Prices FIGURE 12 • Leading to Higher Inflation in the have Been Surging GCC 120 450 5 400 100 4 350 80 300 3 US Dollar/bbl US Dollar/mt 250 2 Inflation rate, percent 60 200 1 40 150 100 0 20 50 –1 0 0 –2 2014 2015 2016 2017 2018 2019 2020 2021 2022M1 2022M2 –3 2018 2019 2020 2021 Crude oil, Brent Wheat, US HRW (rhs) Qatar UAE Saudi Arabia Source: World Bank Commodity Price Data (The Pink Sheet), March 2022. Oman Kuwait Bahrain Note: Wheat US HRW is hard red winter Gulf ordinary protein export price delivered at the US Gulf port for prompt or 30 days shipment. Source: Haver Analytics and World Bank, Macro Poverty Outlook, Spring 2022. Inflationary pressure is rising as supply bottle- quarters which should act as an effective brake on necks drive up global prices and as aggregate CPI inflation in the GCC. demand improves, reversing the trend of nega- tive CPI growth (deflation) in most GCC states Fiscal deficits across the GCC shrank in 2021 as hydrocarbon market conditions recovered… With the reactivation of aggregate demand and associated supply side-value chain delays which Overall GCC fiscal balances went from a deficit of are still present from the pandemic, the rise in 10.7 percent of combined group GDP in 2020 to commodity prices from the war in Ukraine and a deficit of 2.5 percent in 2021. Combined GCC associated economic sanctions has led to a rise central governments revenues are expected to have in CPI inflation in the GCC (Figure 12). Food and grown by 30 percent in 2021; meanwhile, tougher beverages as well as transportation have been the fiscal discipline measures adopted by several common components of the CPI that have risen the countries kept a cap on expenditures which are most in the GCC, with some countries (Qatar and projected to have grown by only 0.8 percent during UAE) also experiencing a rise in recreation prices. the same period. Revenues from hydrocarbons form In Saudi Arabia, headline inflation registered 3.1 the bulk of the public sector’s total revenues, ranging percent in 2021, as the VAT-driven impact on inflation from a low of 58 percent in the case of Bahrain to dissipated, but was partially offset by higher food and 90 percent in Qatar and Kuwait. Accordingly, fiscal transportation prices. balances which had been deeply in deficit in 2020 Inflation has also been observed in other high- when oil prices reached their historical nadir have income countries, which has prompted central banks greatly improved in 2021 (Figure 13). While most GCC in the US and the UK to raise policy rates. Given that countries had announced tighter fiscal policies, it is GCC currencies are pegged to the US dollar,2 their central banks have raised policy rates in tandem 2 The exception is Kuwait whose currency is tied to a with the US Federal Reserve (FED). Several more basket of currencies, which includes the US dollar, and is rounds of FED tightening are expected in the coming thereby partially affected by US FED policy rate decisions. 6 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES FIGURE 13 • Fiscal Balance Improved as Oil FIGURE 14 • Public Debt to GDP Had also Grown Prices Rose in 2021… in Response to the Pandemic, but Stabilized in 2021 and is Set to 0 Shrink Given Booming Oil Prices –5 150 –10 120 Debt stock, percent of GDP Percent of GDP –15 90 –20 60 –25 –30 30 –35 0 Kuwait Bahrain Oman Saudi UAE Qatar Kuwait Bahrain Oman Saudi Qatar UAE Arabia Arabia Fiscal deficit, 2020 Fiscal deficit, 2021e 2019 2020 2021e Source: Haver Analytics and World Bank, Macro Poverty Outlook, Spring 2022. Source: Haver Analytics and World Bank, Macro Poverty Outlook, Spring 2022. Note: 2021 data for Saudi Arabia is official instead of estimates. Note: 2021 data for Saudi Arabia is official instead of estimates. anticipated that the cumulative GCC fiscal position Exports and the current account in the GCC are will strengthen for 2022. also very closely tied to the price of oil (Figures 15 Diversification from oil revenues is being and 16). Despite the rise in food prices, the current pursued by all GCC countries with Bahrain (doubling account surplus has once again surged to more than the VAT rate to 10 percent), Oman, Saudi Arabia (with 6 per cent of GDP with the rise in oil prices. For the VAT at 15 percent) and UAE having introduced VAT; time being, in an environment marked by no major Kuwait and Qatar have yet to introduce this GCC shifts in the OPEC+ production strategy, the growth of wide measure but are committed to it. Additionally, net exports is mostly due to higher oil prices. the UAE announced the introduction of a corporate Saudi Arabia, Bahrain, and Qatar’s current income tax to become effective in 2023. Oman stands account balances are estimated to return into out for having implemented the first Medium-Term surplus as energy prices and export earnings Fiscal Balance Plan (2020–24), a fiscal consolida- recover. In the UAE and Kuwait current account sur- tion program, which aims at putting public debt on a pluses shrank in 2020 due to underperformance of sustainable path through increased non-hydrocarbon both hydrocarbon and non-hydrocarbon exports miti- revenues, expenditure rationalization and SOE reforms. gated by lower imports. However, as trade recovered Public debt to GDP ratios, which had increased in 2021 and export earnings increased, both countries in 2020 in most GCC countries to combat the pan- registered wider current account surplus in 2021, with demic, are expected to remain stable or decline in Kuwait reaching 25 percent of GDP. In Oman, higher 2021 (Figure 14). It should be noted that the levels of hydrocarbon exports, reduction in public investment public debt in the GCC countries are relatively low with expenditure, and Omanization efforts that led to lower the exceptions of Bahrain and Oman.3 outward remittances all contributed to the marked The overall GCC current account balance is 3 While Qatar’s debt to GDP ratio is also relatively high at estimated to have returned to pre-pandemic 59 percent to GDP, it needs to be compared to central levels in 2021 as energy prices and export bank reserve holdings in relation to GDP of 18 percent earnings recovered and QIA holdings in excess of 270 percent to GDP. Recent Economic Developments1 7 FIGURE 15 • GCC Export Growth Closely Follows FIGURE 16 • …with the Current Account Surplus Oil Prices… Expanding to pre-Pandemic Levels in 2021 10 80 10 8 8 70 6 6 60 8 4 4 2 Y/Y growth, percent Percent of GDP 2 50 6 US $ per barrel 0 0 40 –2 4 –2 30 –4 –4 –6 20 2 –6 –8 –8 10 0 –10 2019 2020 2021e –10 0 2017 2018 2019 2020 2021 GCC, Current Account Balance (lhs) GCC, Exports (rhs) GCC Exports (lhs) Crude oil (rhs) GCC, Imports (rhs) Source: Macro Poverty Outlook, Spring 2022. Source: Macro Poverty Outlook, Spring 2022. decline in the current account deficit, estimated to public services (such as education and health) and reach less than 4 percent of GDP in 2021, compared stability to cover recurrent expenditures (such as the with 12 percent in 2020. wage bill and pensions), oil revenues are a source of acute volatility. As noted, oil revenues in the GCC GCC economies remain dependent on average nearly 70 percent of total revenues.4 Nonoil hydrocarbons despite efforts towards revenues would therefore offer another vehicle to diversification over the last several of decades... enhance the sustainability of public services. As shown in Figure 18, a critical problem As a result of the recent commodity boom, there for GCC economies that are dependent on oil is is a risk that reform efforts to diversify the GCC that it is very difficult to expand non-oil exports. economies away from oil may be delayed. In the Only Bahrain, and to a lower extent UAE, have been year 2012, the oil economy represented 42 percent able to make significant strides in non-oil exports, of total GDP in the GCC countries (GDP weighted due in part to the running down of oil supplies in the average), whereas in 2022 the percentage that is former and in Dubai. For resource-rich GCC countries expected is approximately 35 percent (Figure 17) an impediment to export diversification that has been which remains quite high. The rising demand for widely researched in the literature is the appreciation hydrocarbons caused by the war in Ukraine and of the real exchange rate (the so called “Dutch dis- associated economic sanctions, and the resulting ease”).5 Appreciating real effective exchange rates, windfalls that GCC energy producers will reap combined with a traditional growth model of higher should be used to pursue deeper reforms to allow higher investments in the non-oil economy, as well as to move assertively to further develop renewable 4 GCC countries also have sovereign wealth funds which energy, climate friendly growth, and the private sector can and at times do act as stabilization mechanisms, but drawdowns are at the expense of future generations. in general to generate jobs and wealth for citizens. 5 The literature on the “Dutch Disease” includes Corden Oil revenues for the public sector are (1984), Edwards (1992), Elbadawi (1994), Sorsa (1999), another source of hydrocarbon dependence. For Mouna and Reza (2001), Hummels and Klenow (2005), countries that wish to provide high-income quality Eichengreen (2008) and IMF (2019). 8 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES FIGURE 17 • Despite Diversification Efforts, the FIGURE 18 • …with Non-Hydrocarbon Export Oil Economy Remains Large in Most Growth Muted in Most GCC States… GCC Countries… 30% 25% Bahrain UAE Oman 13% Oil 29% Oil 32% Oil 20% 15% 10% Saudi 5% Arabia Qatar Kuwait 37% Oil 38% Oil 49% Oil 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Saudi Arabia UAE Bahrain Oil GDP Non-oil GDP Oman Kuwait Qatar Source: Macro Poverty Outlook, Spring 2022. Source: National Authorities, WITS, and WBG staff calculations. national labor costs, and weak total employment capital to unlock investment opportunities in giga proj- growth, act as a drag on export diversification and ects as envisioned in the National Investment Strategy. cost competitiveness. Industrial policies are being used to advance Despite the focus on managing the pandemic, the drive toward diversification. For example, the GCC countries continued to implement Aramco has transferred 4 percent of its shares (the structural reforms over the past six months in equivalent of $80 billion) to the Public Investment Fund areas with the potential to advance economic (PIF) to boost assets under management and deploy diversification… BOX 1. TRACKING RECENT STRUCTURAL REFORMS (Q4 2021/Q1 2022) Saudi Arabia continues to improve the investment environment: The National Center for Privatization and PPP approved a new set of rules governing public-private agreements. Furthermore, Saudi Arabia launched new initiatives to improve the business environment, e.g., new services to investors to set up a business; developing the tourism sector such as the TROJENA project in NEOM; and attracting specialized labor by approving granting of golden residency to highly-skilled professionals. The UAE pushes forward green growth and business environment agendas: The UAE and USA announced a $4 billion joint agricultural initiative to accelerate innovation for green agricultural and food systems over the next 5 years. In parallel, ADNOC announced a $127 billion capital spending plan for 2022–26 and approved the New Energies Strategy, aimed at reducing its carbon footprint and capitalizing on opportunities in renewable energy. Furthermore, the UAE government approved wide-ranging reforms to the country’s legal system to strengthen the economic, investment, and commercial environments. Finally, the UAE introduced a 9 percent corporate income tax (CIT) on businesses starting in June 2023. Qatar enhanced contract enforcement: Qatar’s Shura Council approved a draft law concerning the establishment of the Investment and Trade Court to oversee legal disputes, including commercial contracts and bankruptcy disputes. Authorities launched the 1,000 Opportunities Initiative, allowing investors to obtain investment opportunities offered by major foreign and local companies. Kuwait enhanced competition: Kuwait’s Parliament approved a new law in 2021 to protect economic competition. Oman opens property ownership for investors: The Ministry of Housing and Urban Planning clarified the conditions under which expatriate investors could own real estate in Oman. Bahrain’s new economic growth and fiscal balance plan: Bahrain announced a new economic growth and fiscal plan to enhance the economy’s competitiveness and to support its post-pandemic recovery. Furthermore, Bahrain introduced the Golden Residency Visa, which can be renewed indefinitely, to attract talent and investment. Recent Economic Developments1 9 2 OUTLOOK AND RISKS As the coronavirus pandemic pressure fades, a sharp rise since the start of 2021. In addition to the the global outlook is now dramatically altered geopolitical risk premia, the overall rise in prices has by geopolitical tensions been driven by rebounding demand for commodities as the global economy recovers from the pandemic. As the recovery from pandemic-induced contraction Production among OPEC+ countries has also been had begun to gain momentum, the global economy weaker than expected. With Russia accounting for is now faced with another supply shock from the 12.5 percent and 9.6 percent of global crude and war in Ukraine and associated economic sanctions. refined petroleum exports, respectively, the nega- The conflict will have sizable economic implications tive energy supply shock has resulted in oil prices through multiple channels, including commodity crossing US$100 per barrel in March 2022, for the and financial markets, trade and migration links, and first time since 2014 (Figure 19). Oil prices have thus confidence. Globally, the economic impact would been revised upwards without any major shifts in the primarily be felt through higher commodity prices. OPEC+ production strategy. Higher energy costs Neighboring European and Central Asia countries have pushed up prices of other energy-intensive are likely to suffer considerable economic damage commodities, such as fertilizers and aluminum. due to their strong trade, financial, and migration links Inventories of industrial commodities have fallen with Russia and Ukraine. The conflict has also raised sharply, particularly for crude oil, natural gas, and tin. the likelihood of a destabilizing wave of refugees, The global outlook is clouded by uncer- widespread financial stresses among some Emerging tainty and subject to various risks. Global growth Markets and Developing Economies, a de-anchoring of prospects will clearly be weaker and inflation higher. inflation expectations, and food insecurity. A protracted Swings in commodity prices and financial markets conflict could heighten policy uncertainty and fragment have been dramatic and volatility seems to be a feature global trade and investment networks. of the outlook in the foreseeable future. Accordingly, Commodity prices surged after the start economic forecasts are likely to be revised more fre- of the conflict, exacerbating previous increases. quently based on unfolding global developments and The increase in commodity prices comes on top of decisions that will affect the macroeconomic outlook. 11 FIGURE 19 • The Conflict Intensified Volatility in FIGURE 20 • …while Limited Trade between GCC Oil Markets… with Russia and Ukraine Controlled Impacts of the Conflict… 120 1% 100 US$ per barrel 0.71% 80 60 40 0.30% 20 0.10% 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022-Jan 2022-Feb 2022-Mar 0.04% 0% GCC Exports GCC Imports Spot Price: Crude Oil: Av, of Brent, Dubai & WTI Russia Ukraine Source: World Bank, U.S. Energy Information Administration (EIA), Oilprice.com. Source: International Trade Center—based on 2020 trade data. Major energy importers will need to The GCC economies are projected to continue strengthen their energy security. Notably, European to recover over the medium term driven by countries that remain highly dependent on Russian oil stronger oil and non-oil sectors and gas, will, in the short term, search for potential substitutes that will likely focus on MENA and GCC The GCC region is projected to expand by 5.9 hydrocarbon exporters as well as the United States. percent in 2022 before moderating to 3.7 percent Efforts to decarbonize the global economy and 3.3 percent in 2023 and 2024, respectively. are also very likely to speed up and intensify as The strong performance is driven primarily by the a consequence of the conflict. Countries around hydrocarbon sector, which is projected to collectively the world were already committed to transitioning to grow by 12 percent in 2022 with the gradual and greener development paths in their NDCs and latest scheduled expansion in supply among OPEC+ COP agreements. The surge in hydrocarbon prices countries (Figure 21). With OPEC+ production cuts is already hastening this transition in many countries ending as announced by end-2022, growth of the and in some a rethink of the role of nuclear energy is hydrocarbon sector is then projected to moderate also in the offing. The rational for renewable energy to 4.1 percent and 3.7 percent in 2023 and 2024, has become more evident with higher hydrocarbon respectively. On the other hand, and as most of the prices, including among the oil exporting countries. GCC population is expected to be fully vaccinated by Overall, and due to the limited trade rela- 2022, coupled with pandemic pressures fading away, tions between the GCC with Russia and Ukraine, the non-oil sectors are set to continue expanding by the net macroeconomic effect of the conflict 2.7 percent in 2022 and 3.2 percent in the medium and associated economic sanctions on the GCC term. The main contributors to growth during the region is projected to be positive (Figure 20) with forecast period are private consumption, as all forms a significant financial windfall from higher energy of social distancing are relaxed across the region, and prices. The hydrocarbon sector is expected to per- fixed investments and exports, as higher oil receipts form strongly in 2022, driven primarily by booming will be channeled through higher capital spending hydrocarbon prices. In addition, the successful (Figure 22). management of the pandemic and the rapid rollout of All GCC countries are projected to register vaccines opens the way for further gains in the non-oil strong recovery in 2022 (Figure 23). In Saudi Arabia, sectors. stronger oil output, which is anticipated to grow by 12 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES FIGURE 21 • GCC Growth is Primarily Driven by FIGURE 22 • …with Private Consumption, Hydrocarbon Sector… Investments, and Exports Mainly Contributing to Growth 15 6 10 4 Contribution to growth, percent 2 Growth, percent 5 0 0 –2 –5 –4 –6 –10 2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024 GCC, Net Exports GCC, Fixed Investment GCC, Real GDP GCC, Oil GDP GCC, Non-oil GDP GCC, Govt. Consumption GCC, Private Consumption Source: Macro-Poverty Outlook, Apr. 2022. Source: Macro-Poverty Outlook, Apr. 2022. 12.5 percent reflecting the gradual easing of voluntary through the PIF and other state agencies—should also output cuts initiated in 2021, coupled with firmer private enhance non-oil sector performance. Meanwhile, in the consumption, reflected through an increase of religious UAE, recovery is expected to strengthen in 2022 as oil tourism, and higher domestic capital spending—signaled production increases, according to OPEC+ planned FIGURE 23 • Individual GCC Countries are Expected to Register Strong Recovery Driven by the Hydrocarbon Sector… 8 15 6 10 4 2 5 Growth, percent Growth, percent 0 0 –2 –4 –5 –6 –15 –8 –10 –15 2019 2021 2023 2019 2021 2023 2019 2021 2023 2019 2021 2023 2019 2021 2023 2019 2021 2023 Saudi Arabia UAE Kuwait Qatar Oman Bahrain Oil GDP (rhs) Non-oil GDP (rhs) Real GDP (lhs) Source: Macro-Poverty Outlook, Apr. 2022. Outlook and Risks 13 schedule, but headwinds to the tourism sector are FIGURE 24 • GCC Countries are to Return to pre- expected with the disruptions of Russian and Ukrainian Pandemic Levels by 2022, Except for Kuwait by 2023… tourists’ arrivals. Oil production in Kuwait is also projected to increase by 8.6 percent in 2022 as new 120 capacity at the Al Zour refinery comes online. Stronger domestic demand and credit growth will further build Real GDP (2019=100) momentum of the non-oil sector. Non-OPEC GCC 110 members, like Qatar, will also witness accelerated growth in 2022 on the back of a stronger hydrocarbon 100 sector and the strengthening of the tourism sector as the country makes final preparations to host the FIFA World Cup 2022 . Oman and Bahrain will experience 90 strong recovery in 2022 benefiting from large projects 2019 2020 2021 2022 2023 2024 implemented in the hydrocarbon sector—LNG projects Saudi Arabia UAE Kuwait in Oman and the development of oil refinery and shale Qatar Oman Bahrain oil projects in Bahrain. Source: Macro-Poverty Outlook, Apr. 2022. In the future, international pressure might trigger production increases, in particular for countries with large spare capacity such as Saudi Kuwait, which is ranked as the most oil-dependent Arabia, and the UAE; this would materially boost country among the GCC countries. economic activity. Similarly, and as Europe reduces its countries’ dependence on Russian gas, Qatar As hydrocarbon prices shift higher from an and Oman could benefit from ongoing expansion of already strong position, the GCC region is LNG capacities to substitute for Russian exports and expected to register strong twin surpluses mitigate risk to energy supply. Qatar may speed up in 2022. investments of natural gas production in the North Field which should see production increase by 60 The regional fiscal balance is projected to register percent at mid-decade. Furthermore, countries like a surplus in 2022—the first surplus since 2014— Saudi Arabia, Oman, and the UAE that are able to reflecting ongoing recovery, higher oil receipts, deliver on and certify their green hydrogen energy and fiscal consolidation efforts. Following record projects could capture market share in Europe and deficits in 2020, government finances in the GCC are replace Russian inputs of green hydrogen used in expected to significantly improve over 2022–2023 vehicles, heating, and shipping. (Figure 25). This is driven by a rebound in oil receipts, Overall, economic activity is expected to spurred by the sharp increase in oil and gas prices return to pre-pandemic levels by 2022—except for following the war in Ukraine and with the OPEC+ Kuwait in 2023 (Figure 24). In 2021, the recovery gradual lifting of production quotas. Furthermore, was subdued and highlights the continued reliance of fiscal performance in the medium term is underpinned GCC economies on the oil sector despite their diversi- by authorities’ commitment to compress expenditures fication efforts. Furthermore, the recovery momentum and build credible budget envelopes. Stronger oil lost steam as most governments tightened fiscal revenues might entice governments in the Gulf to policy during 2021 (cutting spending on non-COVID loosen fiscal policy somewhat; especially, those related items and raising taxes) to address many with lower oil-price breakeven points and healthier public finance distortions that were building up prior balance sheets like Saudi Arabia, UAE, Kuwait, and to the pandemic. Paradoxically, the recovery from Qatar. So far, the 2022 published budgets across the the pandemic’s twin shocks (demand- and supply- region suggest the continuation of tight fiscal policy induced shocks) is projected to be the slowest in which is appropriate to further consolidation. 14 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES FIGURE 25 • GCC Fiscal Balance is Projected to FIGURE 26 • ...with All Countries Reporting a Register a Surplus in 2022—the First Fiscal Surplus Except for Bahrain… Since 2014… 20 100 8 40 50 4 0 20 Percent of GDP Percent of GDP Growth, Percent 0 Percent of GDP 0 0 –20 –4 –50 –20 –8 –40 –100 2020 2022 2024 2021 2023 2020 2022 2024 2021 2023 2020 2022 2024 2021 2023 –12 –40 Saudi UAE Qatar Kuwait Oman Bahrain 2019 2020 2021 2022 2023 2024 Arabia GCC, Fiscal Balance (lhs) Government Revenues (rhs) GCC, Government Revenues (rhs) Government Expenditures (rhs) GCC, Government Expenditures (rhs) Fiscal Balance (lhs) Source: Macro-Poverty Outlook, Apr. 2022. Source: Macro-Poverty Outlook, Apr. 2022. All GCC countries are expected to report a lead to surpluses for the fiscal balance in Qatar and fiscal surplus in 2022 except for Bahrain, which is Oman estimated at 3.4 percent and 4.4 percent of expected to report a deficit (Figure 26). In Saudi GDP, respectively. The fiscal deficit is projected to Arabia, the budget balance is expected to register a continue narrowing over the medium term in Bahrain, surplus of 9.1 percent of GDP in 2022 driven by higher supported by high hydrocarbon revenues and imple- oil receipts, with most of capital spending channeled mentation of fiscal adjustment measures under the through the PIF and other state agencies—signaling Fiscal Balance Program (FBP). that the overall fiscal stance is more expansionary Overall, government debt as a share of GDP than officially reported through the budget, reflecting is on a downward trajectory relative to peaks the absence of a unified budget in the country. This is reached during the pandemic. In Bahrain, the debt- also affecting the push for reforms to get the real pri- to-GDP ratio is projected to fall against the backdrop of vate sector to become the main driver of the economy narrowing deficits but continue to be elevated above per Vision 2030. In the UAE, fiscal balances will 120 percent (Figure 27.A.). Meanwhile, Oman’s public receive a boost from both higher oil revenues and the debt-to-GDP ratio is forecasted to gradually decline to introduction of CIT. Meanwhile, Kuwait is projected to an average of 46 percent of GDP by 2024 supported register a large surplus of 13 percent of GDP in 2022, by higher oil and non-oil revenues. Collectively, the which will enable the partial clearance of US$7.7 bil- region is projected to reduce the need to tap into lion in arrears that Kuwait’s finance ministry owes to international capital markets for financing needs other ministries and public bodies. Unfortunately, the during the medium-term supported by stronger fiscal Kuwait government might use this increase in oil price positions. to delay much needed reforms. The continuation of However, contingent liabilities remain a high oil prices with a premium expected for natural problem in the GCC. For instance, the UAE’s gov- gas in Europe from geopolitical tensions, as well as ernment related entities (GRE’s) remain a significant the EU’s recent classification of this hydrocarbon source of vulnerability and risk to the public sector feedstock as a green target investment, should and the ability of GREs to meet their debt obligations Outlook and Risks 15 FIGURE 27.A • Overall, Debt-to-GDP is on a FIGURE 27.B • However, Government-Related Declining Trajectory… Entities (GREs) Debt Remain a Source of Vulnerability to the 150 Public Sector… 15 100 Percent of Emirate's GDP Percent of GDP 10 50 5 0 0 2020 2021 2022 2023 2024 2020 2021 2022 2020 2021 2022 Abu Dhabi Dubai Saudi Arabia UAE Qatar Kuwait Oman Bahrain Government GRE Source: Macro-Poverty Outlook, Apr. 2022. Source: IMF 2021, UAE Article IV Consultations. is uncertain specially in an environment of increasing growing in tandem in the forecast period (Figure 28). interest rates (Figure 27.B). Abu Dhabi’s GRE debt The services trade balance will remain in deficit across increased by 32 percent from 2017 to US$64.2 billion the GCC, except for Oman and Bahrain, while deficits in 2020, while Dubai’s GRE debt was US$51 billion in in the primary and secondary income accounts will 2020 (IMF, Feb 2022). Despite changes in the com- persist, except in Kuwait (Figure 29). position of debt (i.e., a shift from loans to bonds and Promising external balance positions across lengthened maturity profiles), Abu Dhabi and Dubai the GCC should help the region in rebuilding buf- GREs face short-term rollover risks with a combined fers that dropped significantly during the pandem- US$68.8 billion debt in 2021–23. GRE debt servicing ic. Higher oil receipts and recovery of non-oil earnings capacity is low, and risks could be exacerbated by a as pandemic pressures ease and tourism travel picks prolonged pandemic and/or tightening global financial up again, should strengthen foreign currency positions conditions. Contingent fiscal risks from GREs should and build-up sovereign funds. Foreign reserves should be closely monitored and pre-emptively mitigated, and also be re-shorn as GCC countries continue with tighter GRE efficiency and productivity must be improved. fiscal policies, which lower overall import spending. Favorable oil market conditions are expected to Inflation is expected to pick-up in 2022 in most improve external balances over the medium term… GCC countries, driven by stronger recovery, before moderating in later years… Higher oil prices and exports are expected to strengthen GCC countries’ external positions, with Across all of the GCC countries, after nearly two the regional current account surplus projected years of low inflation and bouts of deflation, higher to reach 14 percent of GDP and hover around consumer prices are projected during 2022. With 11 percent of GDP during the forecast period. With the exception of Saudi Arabia, where higher-base hydrocarbons continuing to dominate the GCC’s export effects from the tripling of the VAT rate continues basket, the recovery in global oil and gas demand through most of 2021, as well as a doubling of VAT and prices will drive the region’s trade performance. in Bahrain, price levels are expected to rise driven by The region’s goods exports are anticipated to grow strong recovery in the non-hydrocarbon sector and at higher rate compared to imports in 2022 before higher global food prices (Figure 30). Price controls 16 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES FIGURE 28 • Current Account Balances Will FIGURE 29 • …with Deficits Persisting in Services Recover Strongly on the Back of Trade Balance and Primary and Higher Hydrocarbon Exports… Secondary Income Accounts 16 12 60 100 8 40 12 50 Percent of GDP Percent of GDP 4 Growth, Percent Percent of GDP 20 8 0 0 0 –4 4 –20 –50 –8 2020 2023 2021 2024 2022 2020 2023 2021 2024 2022 Saudi UAE Qatar Kuwait Oman Bahrain 0 –12 Arabia 2019 2020 2021 2022 2023 2024 Primary and Secondary Income Balance (rhs) GCC, Current Account (lhs) GCC, Exports (rhs) Services Trade Balance (rhs) Current Account Balance (lhs) GCC, Imports (rhs) Merchandise Trade Balance (rhs) Source: Macro-Poverty Outlook, Apr. 2022. Source: Macro-Poverty Outlook, Apr. 2022. and regulations of power, water, and fuel in most GCC duration of the military operations will determine eco- countries offer protection from a full pass-through nomic implications on commodity and financial mar- effect of higher global prices. Furthermore, and in kets, trade, and overall confidence. Despite their small light of the continuation of the US dollar peg, central contributions to global output and trade (around 2 per- banks in the Gulf are and will be on a tighter monetary cent), both Russia and Ukraine are important suppli- policy path following the US Federal Reserve (FED) ers of essential commodities, notably cereals, fertiliz- policy outlook (Figure 31). The recent FED decision ers, gas, oil, and vital metals, whose prices in world to hike the policy rate by 25bp was matched by GCC markets have all soared. This could indirectly dampen central banks in the same amount. Higher rates will non-oil recovery in the GCC region. act as headwinds to domestic demand, dampening The battle against COVID-19 is not over yet. consumption and investments, and reduce further Although there is some optimism that the global pan- inflationary pressures. Accordingly, inflation is demic is evolving into an endemic, the resurgence anticipated to hover around 2.2 percent in the GCC of cases in North Asia and regional lockdowns in region during 2023–24, far below other markets. important manufacturing hubs in China pose risks to supply chain disruptions. Furthermore, the risk of new Risks to the outlook remain significant variants that are vaccine-resistant could still emerge notwithstanding the recent oil price increase… anywhere in the world. The GCC has passed through multiple infection waves, but the peaks have fallen A prolonged war in Ukraine and associated eco- rather than risen in terms of the death and hospitaliza- nomic sanctions could intensify policy uncer- tion rates which are now mercifully low. tainty and fragment global trade and investment Higher oil prices and the financial windfall networks. The conflict as resulted in a broad-based that they entail for GCC economies reemphasize supply shock to the global economy at a time when the urgency to delink their path from oil and speed some parts of the world are still recovering from the diversification efforts. The region is still strongly pandemic. Furthermore, the degree of escalation and commodity dependent, which leaves it exposed to Outlook and Risks 17 FIGURE 30 • Higher Inflation is Anticipated in FIGURE 31 • …but Tighter Monetary Policy Should Most GCC Countries… Help Reduce Inflationary Pressures 6 4.0 3.5 4 3.0 Percent 2 2.5 2.0 0 1.5 1.0 –2 2022 2023 2024 2021 2022 2023 2024 Saudi Arabia UAE Kuwait Central Tendency Median Fed Funds Rate Qatar Oman Bahrain Source: Federal Reserve System, FOMC Projections, Mar 2022. Source: Macro-Poverty Outlook, Apr. 2022. both near-term price declines and a longer-term shift In addition to oil price volatility, fiscal risks away from hydrocarbons. If oil revenue holds near in the region stem from large public sectors and its current level, it will test the commitment to reform. state-owned enterprises. Oil price volatility and The conflict has exacerbated the energy security risk. uncertainty in the oil market will continue, which is Higher oil prices exert more pressure on GCC coun- especially detrimental for the fiscal sustainability of tries for faster output increases to compensate for the region. GCC budgets remain dominated by rigid lost production from Russia and make up for OPEC and high spending on wages and transfers which members (such as Nigeria and Angola) that have per- hampers the capacity of fiscal reform. Contingent sistently missed their quota, which could make GCC liabilities in the form of state-owned enterprises, such countries more dependent on oil. Structural reforms as those in the UAE, pose significant risks to the are therefore urgently needed targeting strong, outlook. The GCC needs to move to a more targeted sustained, inclusive, and greener growth; while at the social safety net that could support necessary reforms same time hydrocarbon revenues should continue to on the fiscal side. play a valuable role in financing the transformation Tighter global financial conditions due and adaptation of these reforms (see Special Focus to rising inflationary pressures would result in a section). Most notably, reforms that target private- monetary tightening in the GCC, further damp- sector development and growth and the creation of ening recovery. Central banks in the Gulf will import jobs is what is most needed. tighter monetary policy from the US by virtue of their Taking a closer look at exchange rate man- dollar pegs, which will act as headwinds on domestic agement in the future and continuing to imple- demand and recoveries in the non-oil sectors. ment competitiveness boosting policy reforms Furthermore, tighter monetary conditions will raise will become increasingly more important for GCC debt servicing costs for existing loans, increasing economies. The non-oil economy is now a much more vulnerability of households, businesses, the GREs, important part of total GDP, but it will need a concerted and the banking sector. This is also the case with debt push to expand non-oil exports. Saudi Arabia, as dis- servicing costs for the public sector. Governments cussed in Box 1 on structural reforms in the GCC, has in the Gulf have been issuing debt, in tandem with been leading a path toward these changes that need reserve drawdowns, to finance large budget deficits to be accelerated and sustained, with the Public Invest- since 2014, although as noted most public debt to ment Fund enabling many industrial policies. GDP is on a downward path among GCC countries. 18 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES SPECIAL FOCUS: ACHIEVING CLIMATE CHANGE PLEDGES Special Focus: Achieving Climate first step in a strategy to address the GCC’s twin chal- Change Pledges lenges of moving to a more sustainable growth model that is less hydrocarbon dependent and managing Abstract the transition to a global low-carbon economic envi- ronment that could see oil revenues greatly reduced Countries across the world are committed to the within the next few decades. decarbonization of their economies. For the GCC, the Linking the expected savings to investments in traditional view is that this creates an existential threat renewables and incentives for increased entrepreneur- given the predominance of hydrocarbons. This Special ship and innovative sectors could represent a solution Focus argues that ample opportunities exist for the GCC to one of the GCC’s greatest challenges, that of pro- to successfully transition to a new development model ducing high income jobs for its youth and women. The that supports their diversification and fiscal consolidation savings can also be used to protect the GCC against agendas, while increasing the potential for economic the effects of climate change such as drought and growth and job creation. This will be a recurrent theme desertification, coastal erosion due to rising sea levels, of future issues of the Gulf Economic Update (GEU). In and an increase in the intensity and frequency of this issue we focus on critical first steps towards higher climate related events such as flooding and cyclones. level outcomes by revisiting energy subsidies, fiscal Starting from the announced Vision state- consolidation, and the importance of getting prices right ments and national commitments to a net-zero for an enabling environment that can place the private emissions economy, this note looks at critical first sector at the forefront of the new growth model. steps needed to usher in a Green Growth strategy Restructuring energy (and water) subsidies, that we will be revisiting in future issues of the GEU. with resulting positive effects on fiscal space and bal- It is not intended to provide prescriptive solutions ance of payments, would allay household and firms’ but rather shine a light on win-win first steps around concerns towards certain decarbonization. It is also a which stakeholder dialogue can begin. 19 Global commitment to transition to green FIGURE 32 • Big Emissions Cuts Still Needed to growth… Limit Warming to 1.50C Projected CO2 emissions Gigatons (Gt) The economies of the GCC have been hit hard by the Global emissions 60 Pre-Paris twin crisis: the Covid-19 pandemic and the concomitant baseline oil price shock. 2020 and 2021 have been challenging 50 years, but a well-managed pandemic response and a bounce back in oil prices in late 2021 has provided the 40 Stated basis for a robust economic recovery. More recently Policies the war in Ukraine has provided temporary windfall 30 profits from spiking energy prices that can be utilized Announced to bring about lasting structural transformations to 20 Pledges GCC economies. Over the medium term, however, it is important that the region seizes the opportunity to 10 shed the old “brown” growth models and switch to Net Zero 0 by 2050 a green resilient and inclusive development (GRID) 2000 2010 2020 2030 2040 2050 model.6 COP26 concluded on November 13th, 2021. Since Paris 2015 Glasgow pledges Remaining Gaps Although it did not manage to confirm pledges of $100 bn for climate finance (now postponed to 2025), Source: World Bank Group 2022. it did manage to keep alive the original 1.5-degree target pledged at Paris and produced some important Without any action the world is likely to breakthroughs,7 including increasing the pace of warm by 2.7 degrees by the end of the century. implementing the Paris agreement, introducing a Despite some positive signs, the COP26 pledges global goal on adaptation, and announced the need close less than 20 percent of the gap to the Net Zero for $130 trillion of private capital to accelerate the by 2050 scenario. Implementing the pledges made at transition to a net-zero economy and greater private COP26 will result in warming of 2.2 degrees. To keep sector transparency. global warming below 1.5°C this century, the world With COP27 scheduled to take place in Sharm needs to halve annual greenhouse gas emissions El-Sheikh, Egypt in November 2022 and COP28 in the in the next eight years. Another way to consider the UAE in November 2023, the region has an excellent scale of the challenge is to look at global emissions chance to shape the global agenda going forward, which currently stand at around 4.5 metric tons per keep the 1.5-degree goal alive, and encourage coun- capita. The sustainable rate is 2.5 tons a figure that tries to develop more ambitious Nationally Determined has not been seen since the mid 1950s8 (Figure 33). Contributions (NDCs) and long-term strategies for a green future. GCC countries can also take the lead However, the GCC faces green growth in encouraging the G20 (responsible for more than challenges… 80 percent of emissions) to provide more climate finance to developing countries, build on the progress Up until now, the GCC has been firmly on a “brown and commitments of COP26, and hold all countries growth” strategy based around the exploitation accountable for meeting and exceeding their targets. Limiting the world’s temperature rise to 1.5°C 6 Heger, Martin Philipp, Lukas Vashold, Anabella Palacios, Mala requires net human caused CO2 emissions to fall by Alahmadi, Marjory-Anne Bromhead, and Marcelo Acerbi. 2022. “Blue Skies, Blue Seas: Air Pollution, Marine Plastics, 45 percent by 2030 and to reach net zero by 2050 and Coastal Erosion in the Middle East and North Africa.” (Figure 32). Even limiting the temperature rise to 2°C 7 https://ukcop26.org/wp-content/uploads/2021/11/ will require CO2 emissions to fall by 25 percent by COP26-Presidency-Outcomes-The-Climate-Pact.pdf. 2030 and to reach net zero by 2070. 8 UNEP: Emissions gap report, October 2021. 20 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES FIGURE 33 • Per Capita CO2 Emissions – a Long FIGURE 34 • All GCC Countries are among the Top Way to go Still CO2 Emitters Per Capita (CO2 Emissions Metric Tons Per 6 Capita, 2018) Per capita CO2 emissions in metric tons 5 35 30 4 25 3 20 2 15 1 10 0 5 1900 1904 1908 1912 1916 1920 1924 1928 1932 1936 1940 1944 1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020 0 World Sustaiable rate QAT KWT ARE BHR BRN CAN AUS LUX SAU USA OMN Source: The Global Carbon Project: Andrew, Robbie M., & Peters, Glen P. (2021). Source: World Development Indicators, 20. and export of fossil fuels and the development of in Saudi Arabia will impact national and GCC regional downstream industries that rely on heavily subsidized outcomes and ultimately affect global CO2 levels. energy prices. The region’s natural endowments and As can be seen in Figure 36: GCC has potential economic policies have led to a situation where GCC to grow greener, there are many other countries with members are among the countries with the highest similar and even higher levels of GDP that have much emissions of CO2 per capita in the world (see Figure 34). lower emissions levels. With technological advance- Saudi Arabia is among the top ten CO2 emitters in ments and availability, GCC countries should start the world (see Figure 35). Reducing CO2 emissions the transition process to a greener growth model. FIGURE 35 • Saudi Arabia Amongst the Top 10 CO2 FIGURE 36 • GCC Has Potential to Grow Greener Emitters (GNI and CO2 emissions mt per (CO2 emissions metric tons, 2020) capita, 2018) Switzerland Norway Qatar Log of income per capita 2018 (US$) 50,000 UAE Saudi Arabia Bahrain Oman 5,000 Environmentally sustainable emissions line 2.5 mt CO2 China United States India Russia Japan 500 Iran Germany South Korea 0 5 10 15 20 25 30 35 Saudi Arabia Indonesia Emissions per capita mt CO2 2018 Source: World Development Indicators, 20. Source: World Development Indicators, 2021. Special Focus: Achieving Climate Change Pledges 21 FIGURE 37 • GCC Emissions Continue to Grow effectively unlivable for many months of the year. It Rapidly (growth in CO2 emissions is estimated that Bahrain could lose up to 15 km of between 2018–2019) coastline with a rise in sea levels associated with a 2 10 degree rise in temperatures. UAE and Saudi Arabia 8 are already among the most water stressed countries 6 in the world. Despite this, they have suffered flooding 4 in recent years. Rising sea temperatures also cause 2 more intense storms, quite evident in Oman which 0 suffers from regular devastating cyclones including –2 Cyclone Shaheen which hit the country in October –4 2021 killing at least a dozen people and causing an –6 estimated US$190 milion of insured damages. –8 In the runup towards COP26, all GCC coun- Bahrain Indonesia Kuwait China South Africa GCC UAE India Saudi Arabia Oman Qatar Brazil Russia Australia Canada France Japan US UK Mexico Italy Argentina Turkey South Korea EU-27 Germany tries updated their NDCs and made additional bold climate change pledges and commitments. The UAE announced a commitment to net-zero emissions by Source: Global Carbon Project, 2019 . 2050 while Saudi Arabia and Bahrain have pledged to achieve it by 2060. While not embracing a net-zero emissions (NZE) target, Qatar announced its aim to GCC countries can become more like Norway, while reduce GHG emissions and reduce carbon intensity Norway can become more like Switzerland by moving of its LNG production by 25 percent by 2030. to lower emissions technologies for energy, transport, Saudi Arabia has launched an ambitious and real estate, while Switzerland and almost all national renewable energy program with a commit- higher income countries still need to bring down their ment to increase the percentage of its electricity per capita emissions to 2.5 mt of CO2 per year. The generated from renewables from currently less than latter is the sustainable rate at which the world will 1 percent to 50 percent by 2030 and to transform its keep global warming below the 1.5-degree level.9 existing power plant to gas, along with a pledge to GCC countries have taken bold actions and made spend SAR 700bn (US$187 billion) in climate action. several commitments to moving in this direction as The renewable energy expected to be generated from the next section illustrates. three main sources are 40 GW of solar PV, 16 GW of GCC countries can take firm measures to read- wind power, and 2.7 GW of Concentrated solar power just their economies to a low carbon environment. (CSP) (AlOtaibi 2021). Saudi Arabia has also signed CO2 emissions continue to grow rapidly in almost all up to cut methane emissions by 30 percent by 2030. GCC countries (Figure 37) while most other OECD Saudi Arabia has also championed global countries have managed to decouple their economies cooperation in the Circular Carbon economy, an idea from emissions even prior to the pandemic. that has received support from Kuwait and other GCC countries. Saudi Arabia has launched the Saudi Green The GCC countries continue to be committed to initiative, which aims to plant one billion trees and raise their climate change pledges… protected areas to more than 30 percent of the country. The GCC countries take climate change very seriously since they are likely to be hardest hit by 9 Hoogeveen, Johannes: “The World Bank needs to embrace global warming. It is estimated that even if the world net zero” blogpost 2021. https://worldbankgroup. were to heat by 2 degrees, the Gulf region might see sharepoint.com/sites/poverty/SitePages/Detail. aspx/Blogs/mode=view?_Id=1764&SiteURL=/sites/ a 4 or 5 degree increase in surface temperatures.10 poverty&search=yes&val=. Given that Kuwait already experiences summertime 10 One of the World’s Wealthiest Oil Exporters is Becoming temperatures above 500C, that could make the country Unlivable. Bloomberg Green, January 16, 2022. 22 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES FIGURE 38 • GCC Climate Change Commitments KUWAIT QATAR OMAN • Updated NC, 10112,021 • Updated NDC, 8/24/2021 • Submitted second NDC 7/28/2021 • Commits to reducing its emissions by • Commits to reduce GHC emissions by • Commits to reduce GHG Emissions by 7.4% (142,290,7580MT CO2eq) by 25% by 2030 compared to BAU. 4% (unconditional) and 7% (conditional) 2035 compared to BAU (2015). • Introduced a rapid mass transit system by 2030 compared to the BAU scenario • Initiated formal producs to study the and upgraded its airport to level 3. (predicted at about 125.254 MT CO2eq) last of removal of subsides for gasoline • Introducing electric vehicle charging • Vision 2040 includes a national energy from the beginning of 2016 and infrastructure and is gradually adopting strategy and carbon control target plan gradual removal of subsidies for Euro 6 emissions standards for regular electricity and water in commercial and vehicles. industrial sectors KUWAIT QATAR OMAN • Updated NDC 10/23/2021 • Submitted second NDC 12/28/2020 • Updated NDC 10/18/2021 • Commits to reducing, avoiding, and • Commits to reduce GHC emissions by • No GHC-related target removing GHG emissions by 278 million 23.5% for 2030 compared to BAU. • Net Zero Pledges: 2060 tons of CO2eq annually by 2030, with (BAU scenario emissions about 310 • Carbon Neutral goal by 2060 the year 2019 designated as the base million tons) • Target of 5% renewable of peak year for this NDC • Net Zero Pledges: 2050 capacity by 2025 and 10% by 2035 • Net Zero Pledges: 2060 • Carbon Neutral goal by 2060 • 6% reduction of energy consumption in • Carbon Neutral goal by 2060 • Develop a Green growth strategy the year 2025 (percentage of the • Target of 50% renewables by 2030 • Target of 50% renewable by 2050 average final energy consumption) • Commitment to advance low-carbon • Formed a hydrogen alliance hydrogen development (green and • Submitted a bid to host COP28 in 2023 blue) In addition to introducing strong climate mitigation energy action plan (NREAP) targeting 5 percent measures at home, Saudi Arabia has also launched the renewables by 2025 and 10 percent by 2035. Qatar’s MENA Green Initiative and aims to provide 15 percent National Environment and Climate Change Strategy seed funding with a target to collect more than US$10 provides a strong policy framework to safeguard billion for green initiatives in the region (see Figure 38). Qatar’s environment and implement Sustainable Likewise, the UAE, which is selected to host Development Goals (SDGs) – with ambitious plans in COP 28 in 2023, has created the world’s first Climate GHG emissions reduction & air quality, land-use, cir- Change Ministry and has pledged to spend AED cular economy & waste management, water resource 600bn (US$163 billion) in clean and renewable management and biodiversity. energy up to 2050 in a bid to generate 23.5 percent In Oman, climate action is central in the coun- of its electricity from renewables by 2030 and 50 try’s development strategy. In 2019, Oman adopted percent by 2050. The UAE supports green infrastruc- its National Strategy for Adaptation and Mitigation ture and clean energy projects worldwide and has to Climate Change 2020–2040, addressing Oman’s invested in renewable energy ventures worth around development aspirations in the low carbon and US$16.8 billion in 70 countries with a focus on devel- resilient transition by driving employment, reducing oping nations. Bahrain’s Joint National Committee climate risks for vulnerable people and sustainably on Climate Change launched a national renewable managing national resources. Special Focus: Achieving Climate Change Pledges 23 FIGURE 39 • The Saudi and MENA Green Initiatives Saudi Green Initiative MENA Green Initiative by KSA Targets Include: Targets Include: • Reduce carbon emissions by more than 4% of global contributions • Aims . secure SAR 39bn ($104 tillien) vat KSA contributing 15% • Plant 10 billion tress acrosa Saudi Arabia of the funds • Raisa protected areas to more than 30% of total land area • To create the nacos., regional snakes backed by OA • Regional Knowledge shining end climate diplomacy Provide an Implementing Developing carbon Increasing public Growing its Offer a stage intersection of energy efficiency captured transportation renewable energy for climate knowledge and programs technology capacity diplomacy capital Kuwait recently made significant efforts addition to joining and endorsing a series of global by designing climate-smart projects, including climate alliances, such as the Global Methane Pledge, desalination plants, improving data infrastructure for the Low-Carbon, Climate-Resilient Health Systems: environmental research and wastewater treatment COP26 Health Joint Program, and the Network for plants. Following the Paris Agreement, the Kuwaiti Greening Financial Services (NGFS). 2021 was an government passed a domestic policy setting a target important year for climate diplomacy in the region. of 15 percent of energy producing from renewable Saudi Arabia and Qatar co-founded the Net Zero sources by 2030. However, significant policy gaps Producers Forum, along with the United States, should be addressed, including in energy efficiency, Norway, and Canada. The UAE, Qatar, and Saudi private sector engagement and sustainable finance. Arabia participated in the Leader’s Summit in Climate A summary of GCC climate change pledges —where they made a series of announcements, such and commitments is presented in Figure 38: GCC as the Saudi Green Initiative and the Middle East Climate Change Commitments. Green Initiative, launched in April 2021. (Figure 39). By 2030, based on the current national com- Despite these impressive set of commitments mitments and project plans, GCC countries are on to low carbon and resilience building actions, there track to save the equivalent of 354 million barrels of is limited progress achieving the bold commitments. oil using renewables. That represents a 23 percent Many of these commitments and actions lack broad reduction in oil consumption that would also create institutional support, institutional capacity nor the more than 220,000 jobs. It would also reduce the adequate ecosystem for the private sector to foster an power sector’s carbon dioxide emissions by 22 per- enabling environment and implement clear strategies cent and cut water withdrawal in the power sector by aligned with this agenda. 17 percent. Given that renewable energy costs less than oil and gas fired energy, the efficiency gain from The question is “how” to transition to low using renewables also boosts fiscal and balance of carbon economy… payments effects. GCC countries are also increasingly involved in At its heart, moving towards a low carbon economy the global climate change dialogue towards action. In is a new twist on the age-old story of how to diversify 24 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES FIGURE 40 • Moving from Brown to Green Growth 10% GREEN GROWTH ZONE BROWN GROWTH ZONE Increase growth while reducing emissions. Reduction is 8% not only by removing but also through CCE or China other means of offsetting the emissions Indonesia India 6% Australia GDP Growth (%) United States 4% Mexico United Arab Emirates Brazil United Kingdom Canada Russia Saudi Arabia Italy Qatar Kuwait 2% Germany Japan South Africa South Korea Oman 0% Argentina Turkey –2% –8% –6% –4% –2% 0% 2% 4% 6% 8% Growth in CO2 emissions (%) Source: Global Carbon Project, 2019 and WB GDP data, 2019. the GCC economies away from oil. In the past, more efficient. Eliminating subsidies on energy GCC countries’ diversification strategies led them and raising prices provide a monetary incentive to move into high emissions sectors that relied on for households and consumers to start thinking cheap energy and low-cost petroleum products for seriously about ways to conserve energy. Improving their competitiveness. The new paradigm is not just energy efficiency is the single most important a diversification away from oil but a diversification element of moving to net zero emissions (see towards green technologies. As seen above, the Figure 41). region is taking bold steps towards this end goal with Reducing emissions towards net-zero is ambitious country and regional commitments and multifaceted, complex, and will require addressing clear vision strategies. There is broad agreement every sector with new policies, incentives, and a on “what” needs to be done to advance the low conducive framework to attract the private sector. carbon transition. Now the focus is on “how” it can be Policies will have to include mitigation as well implemented. as adaptation elements to reconfigure business GCC are not the first countries to contemplate models, use new technologies, and develop the this transition. Several European and Asian countries infrastructure and markets required to move to have successfully made the transition away from a low-carbon. Figure 42 indicates the most prominent manufacturing base of high polluting industries to sectors to tackle. Clearly the electricity sector is the high-tech non-polluting industries. Countries like largest. Within the GCC approximately 70 percent Germany, the UK, and South Korea offer excellent of electricity production is spent on air-conditioning. examples of what can be done with strong political Introducing emissions and efficiency standards for will and public support (Figure 40). AC units as well as for better insulated homes can The first step in the transition is to take stock go a long way to addressing this but will take time of current energy usage and find ways to make it to implement. Government can target the major Special Focus: Achieving Climate Change Pledges 25 Drivers of GHG Emissions Reduction FIGURE 41 •  energy, implementing energy efficiency standards, and (in Gigatons) within the Framework expanding the circular carbon economy (Figure 43). of IEA’s 66% 2°C Scenario – Relative The way forward for the GCC region to a win-win to the New Policies Scenario scenario…first steps 40 Stated Policies Scenario The world is moving towards green energy, but the old economy is unlikely to contract quickly. Policymakers in 30 the GCC need to make far-sighted decisions to adapt to the transition, matching the climate dividend to the economic dividend. Gt CO2 20 Given the magnitude of the challenge, GCC gov- ernments cannot succeed alone but need the support of the domestic and international private sectors. How 10 Sustainable Development Scenario can GCC countries bring in the expertise and funding needed? Is there a way to achieve their targets ahead of time, moving towards a lower carbon economy while 0 2010 2020 2030 2040 2050 also increasing jobs and economic activity? This section attempts to answer these questions 37% Efficiency 32% Renewables 8% Fuel switching 3% Nuclear 9% CCUS 12% Other with a focus on the following topics which we consider as first steps in the process of a comprehensive Source: Belaid IAEE Energy Forum, First Quarter 2022. green growth strategy: (i) removing energy subsidies; Note: CCUS = Carbon Capture, Utilization and Storage. (ii) scaling up renewable energy; and (iii) creating a conducive environment for green growth. reforms to high emitting sectors and create niches for the first demonstrations and testing of new Energy Subsidies technologies. GCC energy and carbon intensity can decline Why fossil fuel subsidies should be at a higher pace while there is an improvement to removed productivity. Such a decline would mean optimizing carbon emitting resources and increasing the use Traditionally GCC countries have provided cheap of cleaner resources, that is, using more renewable gasoline and energy to their citizens and businesses. FIGURE 42 • GCC GHG Emissions by Sector, 2016 11% GCC GHG emission by sector Fugitive 9% from energy production 38% 17% 16% Industry Electricity & Heat Manufacturing/ Construction energy Transport 9% Bunker Fuels Waste Ot... Fu... ... ... Source: CAIT Climate Data Explorer, 2016. 26 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES FIGURE 43 • Energy Versus Carbon Productivity with inefficient usage and wasteful practices both in (2019) households and industrial settings. Subsidized energy 0.7 prices are the main driver behind GCC economies South Africa high per capita emissions as presented in Figure 43. CO2 per GDP (Kg/international $, PPP) 0.6 Greener and more Providing energy at low prices has also efficient Kuwait Oman 0.5 effectively absorbed resources that could otherwise China Russia Qatar have been invested in modern social safety nets, 0.4 Australia Saudi Arabia roads, education, health care, or saved for future gen- 0.3 India Canada United Arab Emirates erations.11 In addition to the explicit subsidies (where South Korea Turkey Japan 0.2 Indonesia United States supply costs are greater than retail costs) there are Mexico Argentina Brazil also implicit subsidies which is the gap between the 0.1 Italy Germany France actual price and the socially efficient price. The latter United Kingdom 0 is the level at which prices would capture the costs to 0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 society of all the negative consequences of fossil fuel Energy per GDP (Kg/international $, PPP) use such as pollution, traffic accidents, and global Source: Global Carbon Project, 2019 and WB GDP data, 2019. warming. Some industrialized countries tax energy heavily to capture these externalities and encourage In some cases, such products are sold at less than the a greener and more efficient production model but cost of production. This has come to be seen as an most still fall far short of efficient pricing (Figure 44). entitlement or citizen’s dividend: a way of sharing the benefits of GCC countries’ hydrocarbon endowments with their population. Low prices have in turn led to 11 Energy Price Reforms in the GCC—What Can Be Learned burgeoning demand from a growing population along From International Experience?, IMF 2015. FIGURE 44 • GCC Countries in the Lowest Quintile for Electricity Prices (2019) 0.4 0.35 0.3 0.25 0.2 0.15 UAE Saudi 0.1 Arabia 0.05 0 Sudan Iran Ethiopia Suriname Iraq Oman Kuwait Qatar Zimbabwe Algeria Azerbaijan Laos Bahrain Trinidad & Tobago Ghana Pakistan Paraguay Turkey Bangladesh Nepal Tunisia Armenia Moldova DR Congo Cameroon China Ecuador Tanzania Indonesia Bosnia & Herz. South Korea Albania Hungary Canada Swaziland Bolivia Ivory Coast Bulgaria Mauritius Macao Norway Colombia Cambodia USA Panama South Africa Estonia Chile Nicaragua Senegal Honduras Sweden Netherlands Slovakia El Salvador Slovenia New Zealand Greece Burkina Faso Uruguay Mali Spain Luxembourg Czech Republic Italy Guatemala Portugal Liechtenstein Ireland Jamaica United Kingdom Cayman Islands Germany Source: Globalpetrolprices.com. Special Focus: Achieving Climate Change Pledges 27 FIGURE 45 • Subsidies by Fuel, 2020 25 20 15 % of GDP 10 5 0 Saudi Arabia Bahrain Kuwait Oman Qatar United Arab Middle East & Europe & Emirates North America Central America Oil Coal Natural gas Electricity Source: IMF, 2021. In recent years, a combination of climate Figure 45 illustrates the breakdown of energy change awareness and the desire to limit emissions subsidies in the GCC (including both explicit and along with resource constraints have led many GCC implicit subsidies). Saudi Arabia is the most affected countries to reconsider these policies. Subsidizing country in the GCC, losing an estimated US$158 energy tends to be regressive since those that benefit billion a year in energy subsidies or 22 percent of the most from subsidies are the urban non-poor. This GDP. The UAE is the best performer in terms of GDP group tend to have larger homes that need to be although it comes second after Saudi Arabia in abso- cooled in the summer and heated in the winter. They lute terms with US$27 billion lost, each year, in explicit are likely to own private cars rather than take public and implicit energy subsidies. transport. A recent review finds that when fossil fuels A further breakdown of subsidies by compo- are subsidized, the richest 20 percent of households nent indicates that the explicit losses are only a small receive six times more in subsidies than the poorest fraction of the total losses to society (Figure 46). To 20 percent.12 Withdrawing energy subsidies should effectively end the subsidies associated with energy therefore be a pro-poor strategy that can generate in the GCC will require not simply recovering the total considerable savings for government that can then costs of supply but also taxing the sale of energy be reallocated to more productive uses. It can also domestically to capture the externalities. The first divert oil and gas consumed for petrochemicals and step would be to move towards cost recovery and fertilizer industries. then towards international market prices. Making a regional decision on retail prices could also be How much do energy subsidies cost important as large discrepancies in retail prices have, the GCC? in other regions, often led to smuggling of petroleum products to take advantage of arbitrage opportuni- Energy subsidies in the GCC result mainly from ties. Of course, this could be done simultaneously providing oil, natural gas, and electricity at lower than while modernizing the social safety net for the society market prices (the bulk of the latter is used to power air conditioning units in the summer months) and in many cases lower than the cost of production. 12 Who benefits from fossil fuel subsidies? IMF 2021. 28 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES FIGURE 46 • Subsidies by Component, 2020 25 20 15 % of GDP 10 5 0 Saudi Arabia Bahrain Kuwait Oman Qatar United Arab Middle East & Europe & Emirates North America Central America Explicit Climate Change Local air pollution Vehical externalities Foregone revenue Source: IMF, 2021. to eliminate hardships of the lower income segments Saudi Arabia (see Figure 47). However, Bahrain stands of society. to benefit the most as a percentage of GDP (7 percent). Removing energy subsidies has the potential Raising energy prices to cover costs will support the for substantial welfare gains. It is estimated that GCC GCC efforts for fiscal consolidation, helping to pay countries could recover US$57 billion or 5 percent of down deficits run up during the pandemic years but GDP annually if explicit subsidies alone were removed. will also have additional benefits such as reducing CO2 The bulk of the gains in absolute terms would accrue to emissions and premature deaths from air pollution. FIGURE 47 • Explicit Energy Subsidies [US$ bn (LHS) and Percent of GDP (RHS)] 50 8 45 7 40 6 35 30 5 25 4 20 3 15 2 10 5 1 0 0 Bahrain Kuwait Oman Qatar Saudi Arabia UAE Explicit Subsidy % of GDP Source: IMF, 2021. Special Focus: Achieving Climate Change Pledges 29 Raising retail energy prices will also ensure could be hurt. For instance, providing incentives for that renewable energy projects become more finan- fossil fuel companies to migrate into renewables cially attractive, supporting the energy transition to or investments in replacement industries and a lower emission economy. Higher domestic prices re-skilling in areas that have traditionally been for fossil fuel products will inevitably lead to lower heavily dependent on fossil fuels. As the GCC has demand as consumers will choose smaller and more diversified into energy-intensive industries such as economical vehicles and appliances as well as better chemicals, plastics, and metals and mining these insulated homes. The reduction in domestic demand companies will see their costs rise and an increased will have a knock-on effect in that GCC countries will pressure to increase the efficiency of their produc- be able to sell the saved supplies at market prices tion processes to compensate for higher energy rather than providing them to domestic consumers at costs.13 Judging from how these industries have subsidized rates, thereby potentially raising revenues fared with price increases to date it seems that for the government without having to invest in creating gradual increases have been manageable across increased production capacity. Alternatively, this the GCC. In the future we would expect a combina- could be diverted to higher value-added petrochemi- tion of adjustment through improved efficiency and cals or fertilizers. Increased revenues can be used to a rotation out of energy intensive industries towards directly compensate the most vulnerable groups who high-tech non-polluting industries as well as a will have to bear the higher costs. switch to lower cost solar/wind/hydrogen energy Given all these arguments it is no surprise as it comes on stream. that the G20 has repeatedly called for a phasing out of inefficient fossil fuel subsidies. The International Energy Agency has also stated that, “In the next few Renewable energy is the new oil years, all governments need to eliminate fossil fuel subsidies,” in a 2021 report laying out a road map to a As we witness the slow sunset of the fossil fuel world with net-zero carbon emissions. Many countries industry, we are simultaneously witnessing sunrise are moving in this direction including those in the on the renewable energy industry. The promise of GCC and yet progress remains slow. What is holding renewables has long been talked about, but several back quicker removal of subsidies? false dawns have caused investors and observers There are a few key reasons why it remains to be cautious. However, recent technological difficult to end fossil fuel subsidies including: the developments have moved ahead of even the most strength of the industry lobby, a concern that rising optimistic commentors, and we are now in an age prices will hurt the poor, concern over the future of where energy derived from renewable wind and solar industries that have relied on low-cost energy for their is far cheaper than that from oil and gas (Figure 48). competitiveness, and a concern that rising fuel prices The cost of large-scale solar energy projects has fallen will feed into inflation and dampen economic growth. by 85 percent in the last decade. There has been a Countries that have tried to remove subsidies significant decline even in the last five years with the rapidly and without consultation have often been faced cost per kilowatt hour falling by about 75 percent with widespread protests that have in turn resulted in from $0.50 to $0.135. The International Renewable back-tracking on the price rises. Those that have suc- Energy Agency (IRENA) suggests that two-thirds of ceeded have often put in place a social safety net to the wind and solar projects built last year will be able protect the most vulnerable or expanded an existing to generate cheaper electricity than even the world’s scheme with cash transfers. Price increases have cheapest thermal plants. been transparently communicated and introduced gradually over time. Governments can also soften the blow by tar- geting future subsidies at industries and firms that 13 Energy price reforms in the GCC. IMF 2015. 30 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES FIGURE 48 • Solar Costs for Energy Generation have Come Down to Around $0.1 Per Kwh 100 10 1 0.1 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Source: Our World in Data, IRENA database 2022. Just as the GCC countries are fossil fuel A good example of this is Saudi Arabia’s leaders so too can they become renewable energy plans to adopt a circular carbon economy approach powerhouses. The GCC region has the lowest price (CCE) in line with its economic diversification plan, solar energy generation with Saudi Arabia and UAE Vision 2030 and its commitment to reach 50 percent vying to break records with every new installation, renewables by 2030. To meet its renewable energy reaching close to 1 cent per KW. The GCC countries target the Kingdom plans to spend up to $50 billion have a tremendous comparative advantage with on new infrastructure by 2023. Saudi Arabia has also much unused land that is highly suited to house solar added ambitious targets for localization to ensure that installations needed for the energy transition. Coastal job creation will benefit Saudi nationals, especially the regions also have tremendous wind potential. The youth. The UAE National Energy Plan 2050 calls for location of the GCC within the sunbelt also brings clean energy to represent 50 percent of the nation’s with it a match between peak sun hours and peak total energy mix by 2050. That would reduce the electricity demand in key export markets. carbon footprint of power generation by 70 percent, Furthermore, the development of alternative bringing with it cost savings estimated at $190bn. energy sources can help the GCC to meet their It is predicted that the world will have to increasing domestic energy demands resulting increase its annual clean energy investment by from general economic development, together with more than seven times—from less than $150 billion population growth and increasing standards of living. in 2020 to over $1 trillion by 2030—to put the world Additionally, developing alternative energy sources is on track to reach net-zero emissions by 2050. These in line with the GCC economic diversification strategies energy and other changes could bring in massive embodied in various vision documents that aim to diver- investments that could create employment for GCC sify the economy by substantially reducing reliance on citizens, especially the youth. If education and hydrocarbons. Within this context, the GCC countries have been actively engaged in joining global forces 14 Almasoud, A.H. and Gandayh, Hatim. Future of Solar to addressing climate change and managing energy Energy in Saudi Arabia, March 2014. Journal of King transition both at international and domestic levels.14 Saud University. Special Focus: Achieving Climate Change Pledges 31 training in the region focused more on the changes and as a source of public benefits. This is especially to come, those employment benefits could be multi- important for poor people whose livelihoods and plied. However, turning these ambitions into reality security depend on nature. will also require the right government policies and regulations. The following section highlights some The green growth policy framework key principles. There is a three-step approach to the policy framework: (i) remove fossil fuel subsidies; (ii) introduce a Creating a conducive enabling carbon price; and (iii) stimulate innovation and green environment technologies. For the policy to be successfully implemented Moving away from the status quo there needs to be a shift in public attitude towards the true costs of using fossil fuels and an understanding Regulated low energy prices for industrial use have of the damage that subsidies are doing to the GCC’s played a critical role in structuring GCC economies long-term prospects. Social and political support for around energy-intensive industries. This has significant the transformation will be essential. Deepening and costs, hampering long-term competitiveness of GCC extending the coverage of existing social protection industry, and diverting scarce fiscal resources from programs, reducing income and wealth inequality, investments in new skills and infrastructure that broadening access to finance, jobs, markets, and could support a new low-carbon knowledge-intensive education, and maintaining a dialogue with the major economy. Subsidies also favor incumbents over new industrial players will all be important to ensure entrants and innovation-seeking private-sector firms that key stakeholders can cope with the change and reduce the incentives for improving operational in domestic energy costs and the deep structural efficiency. Additionally, the billions spent on fossil changes in the economy. fuel subsidies creates a powerful lobby to maintain Introducing a carbon tax or a carbon price the status quo. This is the reason that, despite all the is often seen as an environmentally effective but arguments for removing fossil fuel subsidies, they highly politically sensitive step. Carbon pricing aims remain larger than the amounts governments devote to increase the costs of polluting fuels and technolo- to clean energy. gies effectively capturing the externalities involved in fossil fuel use. It also has the advantage of potentially Moving towards a green economy raising fiscal resources that can then be used to support clean energy. But it is also equally sensitive In a green economy, growth in income and employment as removing energy subsidies and must be handled is driven by public and private investments that in the same careful manner to avoid economic hard- reduce carbon emissions and pollution, enhance ship for vulnerable communities and potential social energy and resource efficiency, create new industries unrest.15 and jobs, and prevent the loss of biodiversity and An additional way forward is to adopt emission, ecosystem services. The key aim for a transition efficiency, and product standards that are in line with to a green economy is to “eliminate the tradeoffs international best practices. The reciprocal adoption between economic growth and investment and gains of environmental standards for fuel efficiency that pre- in environmental quality and social inclusiveness…the vail in major consumer markets such as the EU, can environmental and social goals of a green economy help GCC countries maintain access and competitive- can also generate increases in income, growth, and ness amid increasing consumer preferences for green enhanced well-being” (UNEP). The development path should maintain, enhance and, where necessary, rebuild natural capital as a critical economic asset 15 UNDP https://dontchooseextinction.com/en/policies/. 32 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES products. Adopting such standards and using Carbon and green sukuks. A few examples are listed here. Capture and Storage (CCS) to offset emissions could The National Bank of Abu Dhabi was the first to issue lead to GCC products being branded as having a low a green bond in the region in 2017. The UAE was carbon footprint. It could also support the scaling up also the first country to the GCC’s first green Sukuk to of innovative environmentally sustainable products. finance energy efficiency investments. More recently, Initiatives to remove subsidies and introduce Abu Dhabi issued a Sustainable Finance Declaration carbon taxes can be supported by targeted public which documents its commitment to addressing cli- expenditure, policy reforms, and regulation changes mate change and the pursuit of a sustainable growth that support clean energy. Expenditures can be pathway. The authorities in Bahrain are promoting focused on adding new capabilities to the economy, investments in green projects and working on the rather than adding value to hydrocarbons, and development of innovative financing structures to prioritizing non-oil produced assets, human capital serve growing investment needs in green industries. and renewable natural assets over oil-related prod- However, GCC countries can also establish legal ucts and services. Governments in the GCC also enforcement mechanisms for an effective use green need to remove preferences for industries within the finance guidelines and policies through penalties hydrocarbon value chain and prioritize those that can for corporations that violate ESG obligations and discover new greener sources of comparative advan- increase awareness of sustainable of the benefits of tage and shelter the oil and oil-dependent exports finance. from external policy shocks.16 Creating the conducive environment for Sustainable Finance Strategies for Green green growth Growth All GCC countries have long-term vision statements GCC countries’ commitment to adopt a green growth that highlight the role of the private sector in future approach can be supported by sustainable finance economic growth. Given the size of the investments practices through a whole of economy approach. that are needed, even GCC governments with deep Governments can adopt sustainable finance pockets cannot finance the transition without the guidelines and taxonomies in national expenditures support of the private sector and know how that (e.g., green budgeting) institutional and governance accompanies FDI. mechanisms, and in the financial/banking system to Earlier World Bank studies have shown that manage climate risks and exploit opportunities from asset diversification along with climate change green investments. Sustainable finance represents mitigation co-benefits represent the best strategy a great potential for the GCC by facilitating clean for moving to a low-carbon economy.17 However, energy technologies, and green financial instruments because the comparative advantage of GCC coun- such as green bonds and green sukuks. tries in energy and emissions intensive products is GCC countries have already adopted a series of so entrenched, additional domestic policy efforts are programs and reforms to crowd in foreign capital and needed to transform their dependence on the fossil improve the business environment for climate-smart fuel-intensive value chain. In addition to offering a investments. It is important to keep improving the conducive environment for private sector participa- business environment and incentivize the industries tion, GCC governments can also consider explicit that would create the diversification and contribute support policies. Below are some concrete ideas that to green growth. Countries in the region have imple- GCC countries can pursue in this endeavor: mented Environmental and Social Governance (ESG) investment principles to encourage sustainability reporting and are increasingly involved in diversifying 16 Gulf Economic Update: Issue 5. their financing debt instruments such as green bonds 17 Peszko et. al. 2020. Special Focus: Achieving Climate Change Pledges 33 • Green public procurement: defined as transparent bidding process, and a clear and the acquisition of goods, works, services, or reliable dispute resolution system. consultancies whose results have the least • Low carbon transportation systems: Transport possible harmful effects on the environment, is the second largest sector for GHG emissions, human health, and safety when compared but it receives the largest subsidy. GCC countries to other competing and similar acquisitions have made progress in this area by introducing or, those that make a positive impact on the mass transit systems. Rail links between the environment. GPP can be a major driver for GCC countries can be accelerated and the use innovation, providing industry with incentives of electric and hydrogen powered vehicles and to develop environmentally friendly works, even trains have a potential to further green the products, and services. Most OECD countries transportation sector. have already adopted GPP initiatives and are • Improving the built environment: GCC tracking outcomes.18 countries continue to grow rapidly. While many • Public-Private Partnerships: PPPs will be of the new planned cities incorporate energy crucial to economic recovery and diversification efficiency aspects such as building certifications, efforts in the post-pandemic era. They can take only a few (mostly to be constructed) cities are several forms from management or operating incorporating a comprehensive low-carbon contracts to concessions through to full development approach. NEOM in Saudi Arabia privatization, depending on the level of private is one such city, planned without cars and sector involvement. Although PPPs have been incorporating a clean underground transportation successfully utilized in the energy sector, they system. Compulsory energy certification systems remain underutilized in other sectors due to and incentives for Leadership in Energy and uncertainty over the supporting legal framework Environmental Design (LEED) certified projects as for PPPs. A comprehensive PPP ecosystem well as subsidies for retrofitting existing buildings with a successful PPP law would permit 100 can generate savings and build consensus and percent private sector participation, repatriation momentum towards a low carbon economy. of profits, appropriate dispute resolution processes, consistency with other legislation, and government support. This should be enhanced by capable and independent regulator, a 18 https://www.oecd.org/gov/public-procurement/green/. 34 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES BIBLIOGRAPHY Alharbi, F.R. and D. Csala. 2021. “Gulf Cooperation Google. 2022. COVID-19 Community Mobility Reports. Council Countries’ Climate Change Mitigation https://www.google.com/covid19/mobility/. Challenges and Exploration of Solar and Wind Hannah Ritchie, Edouard Mathieu, Lucas Rodés-Guirao, Energy Resource Potential.” Appl. 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Consumption, Contr. to Growth % –0.4 –2.9 0.7 0.6 0.6 0.4 0.4 0.4 0.3 0.3 GCC, Fixed Investment, Contr. to Growth % 1.1 –0.1 –0.7 0.1 0.6 –1.7 1.3 1.3 1.4 1.0 GCC, Net Exports, Contr. to Growth % 2.5 5.1 –2.6 1.5 –0.1 –0.6 –0.1 2.0 0.7 0.8 GCC, Current Account Balance, % GDP –2.4 –2.8 2.8 8.5 6.5 0.9 6.6 14.5 12.5 9.6 GCC, Fiscal Balance, % GDP –10.7 –10.3 –7.2 –3.1 –3.4 –10.7 –2.5 7.1 5.2 3.3 37 ANNEX 2 COUNTRY SUMMARY TABLES Key Economic Indicators BAHRAIN SELECTED ECONOMIC INDICATORS 2016 2017 2018 2019 2020 2021E 2022F Nominal GDP, US$, billions 32 35 38 39 35 39 41 Real GDP, % change 3.6 4.3 2.1 2.1 –4.9 2.6 3.5 Hydrocarbon –0.1 –0.7 –1.3 2.2 0.1 0.7 0.7 Non-hydrocarbon 4.5 5.5 2.4 1.9 –7.0 3.9 3.7 CPI Inflation Rate, average, % 2.8 1.4 2.1 1.0 –2.3 –0.6 2.5 Government Revenues, % GDP 17.5 18.2 21.8 23.7 17.3 22.5 23.7 Government Expenditures, % GDP 35.0 32.2 33.1 32.8 34.6 33.2 30.5 Fiscal Balance, % GDP –17.4 –14.0 –11.3 –9.1 –17.4 –10.7 –6.8 General Government Gross Debt, % GDP 81.3 88.2 93.9 101.9 130.0 122.2 123.0 Merchandise Exports, % nominal change –7.3 12.4 11.4 –1.3 –14.6 22.7 4.5 Merchandise Imports, % nominal change –5.4 13.2 13.3 –6.8 –7.6 15.7 4.2 Current Account, % GDP –4.2 –4.0 –6.5 –2.1 –9.3 4.3 4.6 Memorandum Items Hydrocarbon sector, % GDP 19.2 18.3 17.7 17.7 18.6 14.0 12.8 Source: World Bank, Macro Poverty Outlook, Spring 2022. 39 KUWAIT SELECTED ECONOMIC INDICATORS 2016 2017 2018 2019 2020 2021E 2022F Nominal GDP, US$, billions 109 121 138 137 107 135 143 Real GDP, % change 2.9 –4.7 2.4 –0.6 –8.9 2.3 5.7 Hydrocarbon 3.9 –14.5 2.3 –1.0 –9.5 –0.6 8.4 Non-hydrocarbon 1.4 9.9 2.6 0.0 –8.1 5.1 2.0 CPI Inflation Rate, average, % 3.2 2.2 0.6 1.1 2.1 3.4 3.6 Government Revenues, % GDP 39.6 43.7 49.3 41.6 32.4 45.3 63.8 Government Expenditures, % GDP 53.6 52.6 52.4 51.1 65.6 56.7 50.7 Fiscal Balance, % GDP –13.9 –8.9 –3.1 –9.5 –33.2 –11.4 13.0 General Government Gross Debt, % GDP 10.0 20.5 14.9 11.0 11.4 11.7 11.9 Merchandise Exports, % nominal change –13.8 18.6 28.6 –7.7 –35.2 26.5 9.2 Merchandise Imports, % nominal change 0.1 7.0 12.0 –11.5 –24.2 26.9 5.6 Current Account, % GDP –4.6 8.0 14.4 24.4 20.8 25.9 42.4 Memorandum Items Hydrocarbon sector, % GDP 60.0 57.3 53.8 53.5 53.2 51.6 48.9 Source: World Bank, Macro Poverty Outlook, Spring 2022. OMAN SELECTED ECONOMIC INDICATORS 2016 2017 2018 2019 2020 2021E 2022F Nominal GDP, US$, billions 65 71 80 76 72 84 98 Real GDP, % change 5.1 0.3 0.9 –0.8 –2.8 2.1 5.6 Hydrocarbon 3.8 –3.5 1.2 –0.3 –1.7 3.5 3.6 Non-hydrocarbon 5.9 2.7 0.8 –1.1 –3.9 1.8 2.5 CPI Inflation Rate, average, % 1.1 1.6 0.9 0.1 –0.9 1.5 3.4 Government Revenues, % GDP 28.7 33.2 36.2 39.2 30.3 34.6 35.4 Government Expenditures, % GDP 51.2 45.2 43.9 44.7 46.4 37.6 29.5 Fiscal Balance, % GDP –22.5 –12.0 –7.7 –5.6 –16.1 –3.0 5.9 General Government Gross debt, % GDP 34.4 48.1 55.0 60.5 71.1 65.3 47.0 Merchandise Exports, % nominal change –20.7 19.2 13.8 –1.1 –21.3 49.7 –2.1 Merchandise Imports, % nominal change –15.1 12.0 –3.5 –8.0 –29.6 38.8 –8.5 Current Account, % GDP –19.1 –15.6 –5.4 –5.5 –11.9 –3.7 5.6 Memorandum Items Hydrocarbon sector, % GDP 26.6 29.7 35.9 34.4 28.1 29.3 32.1 Source: World Bank, Macro Poverty Outlook, Spring 2022. 40 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES QATAR SELECTED ECONOMIC INDICATORS 2016 2017 2018 2019 2020 2021E 2022F Nominal GDP, US$, billions 152 161 183 176 157 168 179 Real GDP, % change 3.1 –1.5 1.2 0.8 –3.6 3.0 4.9 Hydrocarbon –0.8 –2.3 –0.3 –1.8 –2.0 3.0 3.6 Non-hydrocarbon 5.8 –1.0 2.2 2.4 –4.5 3.0 5.7 CPI Inflation Rate, average, % 2.3 0.3 0.1 –0.9 –2.6 1.0 4.0 Government Revenues, % GDP 30.9 27.8 31.2 33.6 32.6 33.9 35.8 Government Expenditures, % GDP 40.1 34.6 28.9 32.5 34.6 34.8 32.4 Fiscal Balance, % GDP –9.2 –6.8 2.3 1.0 –2.1 –0.9 3.4 General Government Gross Debt, % GDP 45.6 50.5 49.8 57.0 62.6 58.6 57.6 Merchandise Exports, % nominal change Merchandise Imports, % nominal change –21.5 17.5 20.4 –10.3 –21.9 19.8 –1.8 Current Account, % GDP 7.1 –2.0 5.8 1.5 –2.7 5.5 2.4 Memorandum Items Hydrocarbon sector, % GDP 39.9 39.6 39.0 38.0 38.7 38.7 38.0 Source: World Bank, Macro Poverty Outlook, Spring 2022. SAUDI ARABIA SELECTED ECONOMIC INDICATORS 2016 2017 2018 2019 2020 2021E 2022F Nominal GDP, US$, billions 645 689 787 749 702 833 879 Real GDP, % change 1.7 –0.7 2.4 0.3 –4.1 3.3 7.0 Hydrocarbon 2.8 –3.6 0.0 –1.3 –6.6 0.2 12.0 Non-hydrocarbon 0.9 1.3 4.2 1.2 –2.5 5.1 3.9 CPI Inflation Rate, average, % 2.0 –0.9 2.5 –1.2 3.4 3.1 2.0 Government Revenues, % GDP 21.5 26.8 30.7 33.2 29.3 30.4 39.0 Government Expenditures, % GDP 34.3 36.0 36.6 37.4 40.3 32.6 29.9 Fiscal Balance, % GDP –12.9 –9.2 –5.9 –4.2 –11.1 –2.1 9.1 General Government Gross Debt, % GDP 13.1 16.9 19.0 23.1 32.5 29.1 23.5 Merchandise Exports, % nominal change –7.9 19.0 30.2 –7.9 –29.9 28.9 38.0 Merchandise Imports, % nominal change –19.9 –1.0 –0.9 3.0 –13.7 10.4 10.1 Current Account, % GDP –3.7 1.5 9.0 4.7 –2.3 5.2 14.0 Memorandum Items Hydrocarbon sector, % GDP 40.1 38.9 38.0 37.4 36.4 35.3 37.1 Source: World Bank, Macro Poverty Outlook, Spring 2022. Annex 2 Country Summary Tables 41 UNITED ARAB EMIRATES SELECTED ECONOMIC INDICATORS 2016 2017 2018 2019 2020 2021E 2022F Nominal GDP, US$, billions 357 386 422 417 359 465 494 Real GDP, % change 3.1 2.4 1.2 3.4 –6.1 2.8 4.7 Hydrocarbon 2.6 –3.2 2.5 2.6 –6.0 –1.6 9.5 Non-hydrocarbon 3.3 4.8 0.7 3.8 –6.2 4.5 2.7 CPI Inflation Rate, average, % 1.6 2.0 3.1 –1.9 –2.1 0.2 2.2 Government Revenues, % GDP 28.9 28.6 31.3 30.3 27.9 31.0 34.1 Government Expenditures, % GDP 30.9 30.2 30.1 31.3 33.3 31.5 29.6 Fiscal Balance, % GDP –2.0 –1.6 1.2 –1.0 –5.4 –0.5 4.4 General Government Gross Debt, % GDP 20.2 20.0 20.9 26.8 39.4 38.8 39.1 Merchandise Exports, % nominal change –0.2 6.5 2.3 2.8 –17.0 32.6 6.4 Merchandise Imports, % nominal change 1.5 2.5 –3.3 4.5 –15.9 29.3 0.7 Current Account, % GDP 3.7 7.1 9.3 8.5 6.0 6.8 13.7 Memorandum Items Hydrocarbon sector, % GDP 30.6 29.0 29.3 29.1 29.1 27.8 29.0 Source: World Bank, Macro Poverty Outlook, Spring 2022. 42 GULF ECONOMIC UPDATE: ACHIEVING CLIMATE CHANGE PLEDGES ANNEX 3 THE CARBON CIRCULAR ECONOMY As part of its G20 Presidency 2020, Saudi Arabia, led by the Ministry of Energy, put forward the concept of the Circular Carbon Economy (CCE) and plans to put it at the center of its climate mitigation plan (Williams 2019). A key insight from CCE is to achieve a pathway towards net zero emissions. This is based around ‘four Rs:’ Reduce: energy efficiency, renewable energy and other low carbon energy such as nuclear; Reuse: carbon capture and utilization (CCU) and emissions to value (E2V); Recycle: natural sinks such as forests and oceans, bio-energy and hydrogen; and Remove: carbon capture and storage (CCS) and direct air capture (KAPSARC 2020). Carbon capture, use and reuse, and sequestration could also be extensively used. Circular carbon economies could be developed, whereby the carbon that is an externality can be put back into the economic system as something useful via reusing and recycling. Carbon dioxide can be feedstock to make fuels, building materials, and other useful chemicals and products. Carbon could also be removed from the air or redirected into old oil and gas wells, and other caverns underground for storage, and even later use as inventions for the use of carbon dioxide are developed. CCE builds on the kingdom’s earlier efforts on reducing its carbon emissions, including the kingdom’s first carbon dioxide enhanced oil recovery demonstration project, which commenced its operation in 2015. The Uthmaniyah plant compresses and dehydrates carbon dioxide from the Hawiyah natural gas liquid recovery plant in Saudi Arabia’s Eastern Province (Global CCS Institute, 2018). The captured carbon dioxide is transported via pipeline to the injection site at the Ghawar oil field (a small, flooded area in the Uthmaniyah production unit) for enhanced oil recovery. At the center of this ambitious CCE approach are the Ministry of Energy and the Energy Ecosystem consisting of King Abdullah Petroleum Studies and Research Center (KAPSARC), King Abdullah City for Atomic and Renewable Energy (KACARE), Saudi Energy Efficiency Center (SEEC), Designated National Authority (DNA), Electricity and Cogeneration Regulatory Authority (ECRA), Nuclear and Radiological Regulatory Commission (NRRC), and the Executive Committee for Governance of Price Adjustment of Energy and Water Products. Source: Zawya.com, Aramco. 43 1818 H Street, NW Washington, DC 20433