Gulf States Face Their Biggest Challenge

The GCC states are now entering into the early stages of reconfigured citizen-state relations similar to what most other non-energy-rich Arab countries experienced from 1986 to 1995.

By Rami G. Khouri

December 30, 2015 | http://thecairoreview.com/tahrir-forum/gulf-states-face-their-biggest-challenge/

Keep your eyes on the oil-fueled Gulf Cooperation Council (GCC) Arab states in the year ahead, because they are just starting to experience a genuinely novel, almost existential, challenge that will test the quality of their statehood and national integrity as these have never been tested before. The issue that sparks this historic reckoning of statehood and citizenship in the GCC is not Iran’s nuclear future, the fate of the “Islamic State,” nor the wasteful war in Yemen. It is the sudden array of sharp fiscal adjustment measures that most GCC states have announced in the past three weeks.
These will curtail government spending, increase taxes and fees on citizens, and reduce the extent of the welfare state that has covered most of the basic life needs of most GCC citizens for the past two generations. The sharp and continuing drop in the price of oil is the main reason for this, given the GCC states’ reliance on oil and gas income for three-fourths or more of their state budgets, which in turn drive the private sector. So most GCC states have dipped into their plentiful reserves to make up for their budget deficits this year, which reached nearly $100 billion in Saudi Arabia and $20 billion in Kuwait.
Most also have already announced measures to reduce spending and increase revenues, such as issuing global bonds, drawing down their reserves, postponing or canceling some state-funded projects, raising corporate taxes, implementing a Value Added Tax, reducing gasoline, water and electricity subsidies, privatizing some basic services, and even introducing income taxes.http://thecairoreview.com/tahrir-forum/gulf-states-face-their-biggest-challenge/