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Volume :21 Issue : 83 1996      Add To Cart                                                                    Download

BUDGET DEFICITS AND ECONOMIC REFORMS IN THE COUNTRIES OF THE GULF COOPERATION COUNCIL (GCC)

Auther : By: Dr. Majid Al-Moneef

Public finance in the countries of the G.C.C. have been gaining increased public and international interest in recent years. This is due to the persistent deficits registered in most G.C.C. fiscal budgets since 1983.

The ratio of the annual and cumulative deficit and public debt to GDP has increased to unsustained proportions. The uncertainty prevailing in the oil market and consequently of government expenditure makes the outlook for public finance in GCC countries very uncertain. The paper analyzes the basic features of the macroeconomic relations of a prototype GCC economy and the central role of government expenditure in the economic growth and distribution. The relation between internal budgetary and external current account deficits are analyzed.

Combined budget deficits in GCC countries have averaged about 14 percent annually of combined GCC countries GDP by decade 1983 – 1993, while combined current account deficit averaged 5 percent annually. Lack of alternative revenue bases and unabated expenditure especially that of an external nature such as arms purchases have aggravated the deficit picture. It is argued that reforming the fiscal system is necessary but not sufficient for the development of the economy along a sustainable path. What is needed in GCC countries is an economic adjustment program that entails price reforms and changes the economic role of the state.

Short and long term policies that could make the economy more efficient and diversified are discussed. In the short term eliminating subsidies, reforming the price and budgetary systems and reducing expenditure are necessary. The last could be achieved by imposing or increasing some taxes on some government services to rationalize their use and pay for their development. In the long run linking, the budgetary and is necessary in the overall restructuring of the economy.

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