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 Sovereign financial wealth: GCC expectation and reality

Sovereign financial wealth: GCC expectation and reality

Is it fair to say that $2 trillion of GCC wealth could be gone in 15 years? Answer: Not Really

 

  • The IMF’s recent paper on GCC fiscal sustainability incorporates some fairly bearish fiscal assumptions. Even without further budgetary control – an eventuality we consider unlikely – we estimate that sovereign financial wealth would likely last another 25 years rather than the 15 years estimate that was widely publicized.

 

  • Too little attention has been given to the enormous progress GCC governments have made to reduce deficits. For instance, across the region, government spending accounted for 10 to 15 percentage points less of the domestic economy in 2018 than in 2011; and non-oil revenue financed, in aggregate, 27% of government expenditure in 2018 versus 10% in 2011.

 

  • Fiscal reform remains a necessary and laudable top priority for GCC governments in the coming years, even though its effect will be to dampen domestic demand. In this context, using sovereign wealth funds to invest in long-term growth projects is both appropriate and desirable.

 

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