The recovery in oil prices from their nadir in April has not prompted policymakers in the Gulf to row back on their plans to push through fiscal austerity. Saudi Arabia suspended the Cost of Living Allowance in June and also delayed or cancelled capital projects to try to rein in spending. And the tripling of the VAT rate in July caused inflation to jump from 0.5% y/y in June to 6.1% y/y last month. Elsewhere, Oman’s Sultan Haitham announced a government reshuffle this month, relinquishing his role as finance minister as part of a push towards correcting the dire public finances. Even if, as we expect, oil prices continue to rise over the next year or so, there will be limited scope for governments to loosen the purse strings and, as a result, economies recoveries will be weak.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services