Low oil prices in the Gulf Cooperation Council (GCC) region continue to increase governments’ fiscal deficits. In an article for Partnerships Bulletin, S&P Global Ratings’ Karim Nassif explains that low oil prices are also encouraging GCC sovereign governments to implement fiscal reform, involving higher taxes and lower subsidies for infrastructure industries such as utilities, telecommunications, and the oil and gas industries.
Nassif adds that as a result of fiscal shortfalls, government funding for infrastructure investment has begun to dry, spurring more innovative methods of paying for the region’s large infrastructure bill. Specifically, governments have been showing an increased appetite for private finance as sovereign bond issues soared from $13.4bn in 2015 to $34.5bn in 2016.
He also notes that public-private partnerships (PPPs) are on the rise. Dubai, for instance, introduced a PPP law in 2015 to increasingly utilise the private sector for its infrastructure needs and to lessen financing burdens from the state. The law also clarifies the role of the state as a regulator rather than an investor and developer – the role many GCC states play. Kuwait, Oman and Qatar have also recently introduced or implemented similar PPP laws in 2015 and 2016, designed to lessen infrastructure financing burdens from the state.
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