The Gulf Cooperation Council (GCC) countries—comprising the UAE, Saudi Arabia, Oman, Kuwait, Qatar, and Bahrain—are navigating a complex global economic landscape marked by volatility in oil prices, geopolitical tensions, and shifting global demand patterns. In this context, fiscal policy and public spending have emerged as critical tools for stabilizing their economies, sustaining growth, and advancing diversification efforts away from hydrocarbon dependency.
Overview of GCC fiscal landscape in 2025
According to the Muscat-based GCC Statistical Center (GCC-Stat), total public spending by the six GCC countries is projected to reach an unprecedented $542.1 billion in 2025. This marks a significant increase compared to previous years and reflects the governments’ commitment to supporting infrastructure development, economic diversification, and social welfare programs despite global economic headwinds.
Government revenues are estimated at around $487.8 billion for 2025, largely underpinned by moderate to high oil prices, which remain the backbone of fiscal income in the region. However, the GCC countries are expected to face a combined budget deficit of approximately $54.3 billion in 2025, which will be managed through a combination of financial reserves and domestic and international borrowing.
Fiscal policy as a stabilization mechanism
Fiscal policy in the GCC has historically been closely tied to oil revenues, making the economies vulnerable to global oil price fluctuations. However, recent reports, including the World Bank’s June 2025 Gulf Economic Update, highlight that government spending has played a crucial role in stabilizing the GCC economies, especially during periods of economic downturns and external shocks.
The World Bank report titled “Smart Spending, Stronger Outcomes: Fiscal Policy for a Thriving GCC” finds that fiscal policy is broadly effective at stabilizing cyclical fluctuations in non-hydrocarbon output. Specifically, a one-unit increase in fiscal spending can boost non-hydrocarbon output by between 0.1 and 0.45 units in the region. Although fiscal multipliers are generally less than one—indicating moderate but positive effects—these multipliers tend to be larger during recessions, underscoring the importance of countercyclical fiscal measures to support demand during downturns.
Public spending priorities in the GCC
The surge in public spending in 2025 is strategically directed towards:
- Infrastructure development: The focus is on accelerating the completion of major infrastructure projects. This includes transport networks, energy facilities, and urban development to support long-term economic growth.
- Economic diversification: Funding initiatives that reduce hydrocarbon dependency by supporting sectors like manufacturing, tourism, technology, and renewable energy.
- Social welfare and employment: Enhancing social safety nets, healthcare, education, and job creation programs to improve living standards and human capital development across the GCC.
- Fiscal consolidation and efficiency: Some GCC states, notably Oman, have begun fiscal consolidation journeys. They are improving expenditure efficiency and diversifying revenue sources to achieve sustainable fiscal balances.
Read more | World Bank: GCC growth projected at 1.6 percent in 2024, 4.2 percent in 2025-2026
Managing fiscal deficits and risks
To finance the projected $54.3 billion deficit in 2025, GCC countries will draw on sovereign reserves and issue debt in domestic and international markets. This mixed financing strategy balances the need for continued fiscal support with long-term debt sustainability.
GCC’s fiscal reform success
Saudi Arabia
Saudi Arabia, the largest GCC economy, has been actively using fiscal policy to stabilize growth amid oil price volatility and global uncertainty. The government’s Vision 2030 reforms focus on diversifying the economy. These reforms aim to expand non-oil sectors such as manufacturing, tourism, and technology. Public spending remains robust, with significant investments in infrastructure, renewable energy, and social programs. According to the World Bank (2025), Saudi Arabia’s fiscal multipliers are positive but moderate, ranging up to 0.45 during downturns, indicating that fiscal stimulus supports non-hydrocarbon output effectively, especially in recessions. The government also expanded its tax base with VAT increases and excise taxes, helping stabilize revenues amid fluctuating oil prices.
UAE
The UAE has pursued an aggressive fiscal diversification strategy, leveraging its status as a regional financial and trade hub. Public spending in 2025 focuses on infrastructure, digital transformation, and social welfare. The UAE introduced a federal Corporate Income Tax in 2023, complementing existing VAT and excise taxes, which has contributed to more stable fiscal revenues. The World Bank report highlights that fiscal multipliers in the UAE, while below one, are larger during economic contractions, making government spending an important countercyclical tool. The country’s sovereign wealth funds also provide buffers to finance deficits without excessive borrowing.
Oman
Oman’s fiscal reforms are a prominent example of successful fiscal consolidation and diversification in the GCC. Under its Medium-Term Fiscal Plan 2020-2024, Oman improved expenditure efficiency, broadened non-oil revenue sources, and prudently managed hydrocarbon windfalls. These reforms have led to a marked improvement in fiscal balance and reduced public debt since 2022. The World Bank notes that Oman’s countercyclical fiscal policy has helped stabilize the economy during oil price shocks, with fiscal multipliers reaching their highest during downturns.
Kuwait
Kuwait maintains a relatively conservative fiscal approach, with significant sovereign wealth reserves that provide a cushion against oil price shocks. Public spending is focused on infrastructure, social services, and economic diversification initiatives. The country has been slower to implement broad-based taxes but has introduced excise taxes and is exploring VAT expansion. Fiscal multipliers in Kuwait are positive but modest, reflecting the high import content of spending and structural factors limiting the domestic stimulus effect. Nonetheless, government spending remains a key stabilizer during economic slowdowns.
Qatar
Qatar’s fiscal policy emphasizes investment in infrastructure, education, and health, aligned with its National Vision 2030. The country has benefited from relatively stable hydrocarbon revenues and has used fiscal surpluses to build sovereign wealth. Recent tax reforms include excise duties and VAT implementation. The World Bank’s analysis suggests that Qatar’s fiscal multipliers, while under one, increase during recessions, allowing fiscal policy to support non-oil growth effectively. Qatar’s large sovereign wealth fund also provides fiscal space to maintain spending during downturns.
Bahrain
Bahrain faces fiscal pressures due to lower hydrocarbon revenues and higher debt levels compared to other GCC states. The government has implemented VAT and excise taxes and is pursuing fiscal consolidation measures. Public spending remains focused on social welfare and economic diversification, particularly in finance and tourism. Fiscal multipliers in Bahrain are positive but constrained by structural challenges and high import dependency. Nevertheless, fiscal policy has played a stabilizing role during recent economic shocks, with multipliers rising during downturns.
Bright outlook
As the GCC economies continue their transition towards more diversified and sustainable growth models, fiscal policy and public spending will remain pivotal. Governments must balance the dual objectives of stimulating economic activity and maintaining fiscal discipline.
Key priorities for the future include:
- Enhancing public investment efficiency: Ensuring capital allocation maximizes returns on GDP and job creation.
- Strengthening countercyclical fiscal policies: Deploying fiscal stimulus effectively during economic downturns to stabilize demand.
- Expanding non-oil revenue bases: Further diversifying income streams through taxation reforms, fees, and investment income.
- Leveraging digital platforms: Improving transparency, service delivery, and citizen engagement in fiscal management.
Frequently asked questions (FAQs)
What is the total public spending projected for GCC countries in 2025?
GCC countries are expected to spend approximately $542.1 billion in 2025, marking an increase from previous years.
How does fiscal policy help stabilize GCC economies?
Fiscal policy, especially government spending, helps stabilize non-hydrocarbon output by boosting demand during downturns and supporting economic diversification efforts.
What challenges do GCC countries face in fiscal management?
The main challenges include oil price volatility, budget deficits, and the need to diversify revenue sources while maintaining fiscal sustainability.
How are GCC countries financing their budget deficits?
Deficits are financed through a combination of sovereign reserves and borrowing from domestic and international markets.
Are fiscal multipliers in the GCC large?
Fiscal multipliers in the GCC are positive but generally less than one, indicating moderate impact; however, they increase during recessions, making fiscal stimulus particularly effective in downturns.
What sectors are prioritized in GCC public spending?
Infrastructure, economic diversification sectors (manufacturing, tourism, technology), social welfare, and employment programs are key spending priorities.
Final word
Fiscal policy and public spending are indispensable tools for stabilizing GCC economies amid global uncertainty. By strategically increasing public expenditure, managing deficits prudently, and pursuing economic diversification, GCC governments are fostering resilience and sustainable growth. The 2025 fiscal outlook—with record public spending and cautious deficit management—reflects a balanced approach to navigating external shocks while investing in the future. Continued reforms and smart fiscal management will be critical as the GCC advances toward its Vision 2030 goals and beyond.
