"*" indicates required fields

This field is for validation purposes and should be left unchanged.

Subscribe

By subscribing you agree to our Privacy Policy

Subscription Settings
Analysis

2021 Budgets Indicate Tough Economic Times Ahead

Mostly smaller budgets and conservative oil price assumptions signal the start of another challenging economic year for the Gulf region.

Saudi Finance Minister Mohammed al-Jadaan speaks during a press conference to announce Saudi Arabia's annual budget, Riyadh, Saudi Arabia, Dec. 15, 2020. (Saudi Press Agency via AP)
Saudi Finance Minister Mohammed al-Jadaan speaks during a press conference to announce Saudi Arabia's annual budget, Riyadh, Saudi Arabia, Dec. 15, 2020. (Saudi Press Agency via AP)

Over the past decade, government spending in Gulf Arab states has grown steadily despite periods of fiscal consolidation. Growing populations, large public sectors, ambitious development initiatives, and high-profile events demand significant expenditures. Yet the fallout from the coronavirus pandemic and oil price rout of 2020 appears to have ushered in a new fiscal trend: lower spending and persistent deficits.

Smaller 2021 budgets and conservative oil price assumptions – around $40 to $50 per barrel – reveal a partial budgetary realignment with economic realities. This cautious approach may permit Gulf governments’ balance sheets to end the year slightly better than expected, given that many oil market watchers have increased their 2021 price forecasts to between $50 and $60/bbl. However, a willingness to post large deficits and the emergence of coronavirus variants, threatening to extend the pandemic, will add more pressure to mounting economic challenges in Gulf Arab states.

Saudi Arabia’s $263.9 billion budget for 2021 is about 7% less than estimated spending for 2020. The expected 2020 deficit was $79.4 billion, about 12% of gross domestic product. Saudi officials hope that the deficit for 2021 will drop to around 5% of GDP. At $37.6 billion, this deficit expectation roughly equates to the $40 billion that the Public Investment Fund plans to inject into the country’s economy this year. The International Monetary Fund estimates Saudi Arabia’s fiscal break-even oil price to be approximately $68/bbl – not far off from bullish oil price forecasts.

Over the past couple of years, Saudi Arabia has taken a number of steps to increase non-oil revenue streams by imposing new taxes and fees alongside spending cuts. But the flip side of rolling out new revenue-generating mechanisms and fiscal consolidation is dampened investor demand. The kingdom has struggled to boost declining or low levels of foreign direct investment flows since 2008. A drop in spending is not music to investors’ ears. However, Saudi officials are aggressively promoting a number of high-profile investment initiatives from the country’s Red Sea coast to Riyadh. Policymakers are also slow-dripping plans for 20 new economic zones with investor-friendly regulatory environments.

Bahrain’s fiscal balance program resulted in a drop in spending in 2019 and 2020. The country’s draft budgets for 2021 and 2022 reflect minimal movement on the expenditure front, beyond a slight decrease in spending from $8.74 billion to $8.54 billion. Deficits will stay high after Bahrain’s fiscal deficit soared to an estimated $4.4 billion in 2020 – equating to around 14% of GDP. Based on an assumption of oil prices averaging $45/bbl, the country’s officials envisage deficits of $3.4 billion in 2021 and $3 billion in 2022. Bahrain may require additional financial support commitments from its Gulf neighbors for 2023 onward, according to Fitch Ratings.

After posting a roughly balanced budget in 2020, Qatar announced a 2021 budget of $53.5 billion. This allocation involves a 7.5% drop in spending, a $9.5 billion deficit, and relatively conservative average oil price of $40/bbl. The country is likely to keep posting deficits through 2024, when expanded gas output should help boost revenue. Yet negative turns in the global gas market over the coming years may add pressure to the Qatari government’s external debt burden, which reached $62.9 billion in 2020, up from $20.2 billion in 2015, according to the Ministry of Finance.

Oman also bears a heavy debt burden but possesses a shallow well of financial resources to meet its various obligations. For the 2021 budget, the country slashed expenditures by 14% compared to 2020 and has factored in an oil price assumption of $45/bbl. Even with these measures, Omani officials are anticipating a $5.7 billion deficit in 2021, which reflects about 8% of GDP. Oman’s medium-term fiscal plan aims for a steady reduction in the deficit – down to 1.7% of GDP in 2024 – and boosting non-oil revenue. However, there are concerns about the sultanate’s ability to meet these deficit and revenue targets.

The United Arab Emirates’ federal budget provides some insight into the fiscal dynamics playing out within individual emirates. The UAE’s 2021 federal budget declined 5% from 2020’s, which was the largest budget allocated since the country’s establishment. The size of Dubai’s 2021 budget is 14% below the emirate’s 2020 budget announced in December 2019, prior to adjustments related to the coronavirus pandemic and oil price rout. The ruler of Sharjah, however, approved the emirate’s largest ever budget – a 12% increase from the 2020 budget.

Kuwait also increased spending by about 7% for its 2021 fiscal year beginning in April. Kuwaiti officials are basing calculations on $45/bbl oil prices: It would take prices of about $90 to balance the budget. A shortfall of about $40 billion is projected, and the government has halted automatic annual transfers to the Future Generations Fund, a sovereign wealth fund. Instead, the government has been transferring performing assets, those with regular cash flows, to the Future Generations Fund in return for cash needed to meet monthly budget deficits. Without progress on a new debt plan, the country has limited options to meet its financing needs over the next year.

The overall size of Gulf budgets and their responsiveness – or lack thereof – to prevailing economic realities are only part of the problem. Another major obstacle involves the distorted nature of Gulf budgets. The oil and gas sector accounts for 70% or more of total government revenue in most Gulf states. Meanwhile, wages and subsidies often constitute a majority of government expenditures. These budgetary components are difficult to reform. Qatar – one of the better-placed countries to undertake fiscal adjustments – only managed to decrease allocations for salaries and wages by 1.9% from 2020 to 2021.

The durability of these revenue and expenditure structures has been impressive but ultimately will become unsustainable. Until deeper changes are made to the structural composition of budgets and non-oil revenue-generating mechanisms become institutionalized, minor adjustments on the margins of fiscal policy will have little overall impact on the ability of Gulf governments to successfully meet the challenges of today and those of tomorrow.

The views represented herein are the author's or speaker's own and do not necessarily reflect the views of AGSI, its staff, or its board of directors.

Robert Mogielnicki

Senior Resident Scholar, AGSI

Analysis

Qatar’s Economic Trajectory Left Unchanged by Recent Attacks

Israeli and Iranian attacks on targets in Qatar are worrying developments for the small Gulf state, but they are unlikely to disrupt an expected acceleration of economic growth over the short and medium terms.

Robert Mogielnicki

11 min read

Tourists and locals stroll through Souq Waqif in Doha, Qatar, May 15. (AP Photo/Fatima Shbair)

The Taxman Cometh to the Gulf

A forthcoming personal income tax in Oman is symbolically significant, but it ultimately confirms – rather than upends – regional tax trends.

Visitors and locals gather at the Mutrah Corniche in Muscat, Oman, April 11. (AP Photo/ Fatima Shbair)

Saudi-Indian Ties Poised for Cautious Growth

For Riyadh, developing stronger ties with India could yield sought-after economic dividends, but it comes with a mixed bag of regional and international implications.

Robert Mogielnicki

11 min read

Indian Prime Minister Narendra Modi meets Saudi Crown Prince Mohammed bin Salman, in Jeddah, Saudi Arabia, April 22. (Saudi Press Agency/Handout via REUTERS)

Israel-Iran Conflict Reveals Resilience and Vulnerability of GCC Economies

The latest regional conflict reinforced how difficult it is to severely disrupt economic momentum in the Gulf Cooperation Council while highlighting genuine threats to economic security and public safety in the region.

Robert Mogielnicki

10 min read

Delegates visit Saudi Arabia's pavilion during the Arabian Travel Market exhibition in Dubai, United Arab Emirates, April 29. (AP Photo/Altaf Qadri)
View All

Events

Oct 21, 2025

4:00pm - 6:00pm

Book Launch: A Political Economy of Sovereign Wealth Funds in the Middle East and Asia

On October 21, AGSI will host a discussion on the strategic economic significance of sovereign wealth funds in the Middle East-Asia investment corridor.

Register
From left to right: U.S. Secretary of the Treasury Scott Bessent, U.S. Ambassador to the UAE Martina Strong, President Donald J. Trump, Crown Prince of Abu Dhabi Khaled bin Mohammed bin Zayed al-Nahyan and ADIA Managing Director Hamed bin Zayed al-Nahyan participate in a business roundtable at Qasr Al Watan in Abu Dhabi, United Arab Emirates, May 16. (AP Photo/Alex Brandon)
From left to right: U.S. Secretary of the Treasury Scott Bessent, U.S. Ambassador to the UAE Martina Strong, President Donald J. Trump, Crown Prince of Abu Dhabi Khaled bin Mohammed bin Zayed al-Nahyan, and ADIA Managing Director Hamed bin Zayed al-Nahyan participate in a business roundtable at Qasr Al Watan in Abu Dhabi, United Arab Emirates, May 16. (AP Photo/Alex Brandon)

Sep 18, 2025

Book Talk: Building the Belt and Road Initiative in the Arab World: China’s Middle East Math

On September 18, AGSI hosted a discussion on the trajectory of China's presence in the Middle East.

Chinese Vice Minister of Commerce Li Fei, center, speaks at the opening of the China-Saudi Investment Conference in Beijing, December 12, 2023. (AP Photo/Ng Han Guan)
Chinese Vice Minister of Commerce Li Fei, center, speaks at the opening of the China-Saudi Investment Conference in Beijing, December 12, 2023. (AP Photo/Ng Han Guan)

May 8, 2025

From Petrodollar Partners to Geo-Economic Rivals? Washington and the Arab Gulf States

On May 8, AGSIW hosted a discussion on how U.S. geoeconomic policy is reshaping ties with Gulf states.

President Donald J. Trump shakes hands with Saudi Arabia's then deputy crown prince and defense minister, Mohammed bin Salman, during a bilateral meeting, in Riyadh, May 20, 2017. (AP Photo/Evan Vucci, File)
President Donald J. Trump shakes hands with Saudi Arabia's then deputy crown prince and defense minister, Mohammed bin Salman, during a bilateral meeting, in Riyadh, May 20, 2017. (AP Photo/Evan Vucci, File)

Jan 23, 2025

Outlook 2025: What Will the New Year Bring for the Gulf Region and U.S.-Gulf Relations?

On January 23, AGSIW hosted a discussion on what regional trends they’ll be following most closely as the year unfolds.

Foreign ministers and delegates pose for a family photo after their meeting on Syria, following the recent ousting of President Bashar al-Assad, in Riyadh, Saudi Arabia, January 12. (Saudi Press Agency/Handout via REUTERS)
Foreign ministers and delegates pose for a family photo after their meeting on Syria, following the recent ousting of President Bashar al-Assad, in Riyadh, Saudi Arabia, January 12. (Saudi Press Agency/Handout via REUTERS)
View All