The past month has brought further signs that governments across the Gulf are responding to higher oil prices by ramping up spending. Both Abu Dhabi and Dubai, the two largest emirates that make up the UAE, have announced stimulus packages. Details still need to be fleshed out but Abu Dhabi’s package amounts to an extra $13.6bn of spending over the next three years, equal to around 2% of the emirate’s GDP per annum. The move follows the Saudi authorities’ decision in January to issue public sector bonuses, while Kuwait recently postponed the implementation of a new value-added tax until 2021. Looser fiscal policy will provide a boost to the Gulf’s non-oil sectors and supports our view that GDP growth across the region, which fell to an eight-year low in 2017, will pick up this year.
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