As oil prices moderate from recent highs, countries in the Middle East are following divergent fiscal paths in their efforts to generate sustainable growth. For FY 2023/24 Kuwait anticipates revenue of KD19.5bn ($63.4bn), primarily driven by oil. During the same period the government’s planned expenditure of KD26.3bn ($85.6bn) allocates 80% to salaries and subsidies, 9% to capital expenditure and 11% to other expenses, resulting in a fiscal deficit of KD6.8bn ($22.1bn). This contrasts with the KD6.4bn ($20.8bn) surplus recorded in FY 2022/23 and underscores efforts to diversify away from oil revenue and government spending.


Saudi Arabia is embracing a budget deficit for the fiscal years from 2023 to 2026, indicating a commitment to allocate resources to giga-projects and promote non-oil economic growth. Projected revenue for 2024 is SR1.2trn ($320bn), providing resources for investment. After leading the group that includes members of the Organisation of the Petroleum Exporting Countries (OPEC) and other producers known as OPEC+ to reduce production in 2023, the Kingdom is emphasising transformative infrastructure projects and advancements in tourism and entertainment. The government’s vision involves attracting more foreign direct investment and solidifying Saudi Arabia’s position as a regional financial and logistics centre.

In October 2021 Bahrain released a plan to balance the budget by 2024. In addition to doubling the value-added tax (VAT) rate to 10%, the plan included less government expenditure, the streamlining of cash subsidies and new revenue initiatives. Although Bahrain aimed to balance the budget by 2022, it revised this target due to the Covid-19 pandemic. “While the pandemic resulted in prolonging the government’s fiscal balance targets to beyond 2022, its discipline in curtailing expenditure raises expectations that it will narrow the fiscal deficit gap and achieve a fiscal balance in the coming years,” Yaser Al Sharifi, group chief strategy officer for the National Bank of Bahrain, told OBG.


Elsewhere in the region, a number of countries are looking to strategies to improve their fiscal position. In January 2022 the UAE announced that it would introduce a tax on corporate earnings. A 9% tax applied to earnings over Dh375,000 ($102,000) came into force in July 2023 as part of the country’s efforts to align itself with international tax standards. The tax will also help diversify the UAE’s budget revenue and reduce its reliance on hydrocarbons.

This is the latest in a series of fiscal measures that have been introduced by the UAE government. In 2018 the country implemented a 5% VAT that applies to imports as well. Despite the tax on corporate earnings, the UAE remains a competitive business destination, as companies operating in free zones across the country are exempt from the tax, and there is still no personal income tax.

The introduction or raising of taxes is an approach that GCC countries have employed in recent years. Saudi Arabia increased its VAT to 15% in 2020, while in April 2021 Oman introduced its own 5% VAT. As of February 2024 Qatar and Kuwait were the only two GCC members that had not introduced VAT following the signing of the Common VAT Agreement in 2016. These efforts come as countries in the Gulf look to sustain their economic recoveries following the shocks of the Covid-19 pandemic and reduce their reliance on hydrocarbons. Governments across the region have sought to diversify their respective economies by investing heavily in non-oil industries and renewable energy.

With the pandemic resulting in significant levels of government expenditure to address the resulting health and economic fallout, there were concerns about how this spending would affect their long-term economic development and diversification plans. Although the initial stimulus resulted in funds being directed towards the provision of health care and financial assistance to their citizens, Gulf countries remain committed to achieving their long-term transformation strategies.