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The crisis engulfing Yemen has been exacerbated by a downwardly spiralling economy, leading United Nations director of humanitarian operations John Ging to warn that a severe famine beckons (see box). Although under intense pressure, the southern provinces appear to have faired better – helped by the UAE military’s supervision of vital areas like Aden and Mukalla – while the northern economy is deeply affected by the financial crisis confronting the Central Bank of Yemen (CBY), underlining how state failure has exacerbated macroeconomic collapse and looming debt problems.

$50/bbl oil has been welcomed across the Gulf, but crude prices are still nowhere near the level needed for Bahrain to cover its costs; the International Monetary Fund calculates that $95/bbl-plus oil is needed to balance its books. In the meantime, Bahrain is having to borrow more. Moody’s Investors Service predicts that government debt could equal the island state’s entire gross domestic product within three years. General government debt was just 13% of GDP in 2008, but reached 59% in 2015 and could rise to 100% by 2019, the ratings agency said in an extensive report published on 24 May.

Ratings agency Moody’s Investors Service has downgraded Saudi Arabia, Bahrain and Oman, and given a negative outlook to the ratings of Abu Dhabi, Kuwait, Qatar and the UAE, ending a review process which began in late February. Saudi Arabia’s rating was cut by one notch from Aa3 to A1, while Oman’s slumped three notches from A3 to Baa3 (only one step above junk status), both with a stable outlook. Oman was previously downgraded from A1 in February. Bahrain has been downgraded from Ba1 to Ba2 with a negative outlook.

The Iranian economy should grow by more than 5%/yr over the next few years, helped by the enhanced position of reformers in parliament, following the 26 February Majles-e Showra-ye Eslami (Islamic Consultative Assembly or parliament) and Majles-e Khobregan (Assembly of Experts) elections (see GSN view). Many analysts adopted the line taken by London-based research house Capital Economics, which said the results should reassure potential international investors and ease fears that hardliners could undermine the nuclear deal, thereby triggering a re-imposition of sanctions.

Standard & Poor’s (S&P) has affirmed its long-and short-term foreign and local currency ratings for Sharjah emirate at A/A-1, with a stable outlook. Mining and energy (which account for around 12% of the economy) have slowed but other key sectors, including real estate and business services (about 21% of GDP), manufacturing (16%) and wholesale and retail trade (12%) have all grown. The emirate’s economy – which grew by an estimated 1.8% in 2015 – has close links to Dubai; provided its larger neighbour can sustain its economy and spending on major projects Sharjah should benefit. S&P expects growth to average 2.8% in 2016-18. GDP is estimated at $28,700 per head for 2016.

The wealthiest of the United Arab Emirates economies has shrunk by nearly one-quarter in nominal terms in the past two years, according to Moody’s Investors Service. The ratings agency’s annual credit analysis report for the emirate, which is rated at Aa2 and stable, said Abu Dhabi’s nominal GDP was expected to be $197.7bn this year, the second straight year of decline and 24% lower than its peak of $261.4bn in 2014. Moody’s said economic growth could come under further pressure this year as a result of government cuts to spending in response to low oil prices.

Ironically, Oman’s fiscal slump has come during a period when the hydrocarbons industry has upped its performance. Ministry
of Oil and Gas data show average crude and condensate output rising to 981,100 b/d in 2015, from 943,500 b/d in 2014; output peaked at 1,007,000 b/d in December. However, the average price nearly halved to $56.5/bbl in 2015 from $103.2/bbl. Consequently, government revenues fell to $17.4bn, from $30.1bn in 2014, despite oil exports reaching a record 844,000 b/d (77% of which went to China).

The business community is concerned about a slowdown in orders, late payments and non-performing loans; analysts are pessimistic about the macroeconomic outlook, in an economy still heavily dependent on hydrocarbons revenues that seems to have suffered more than its GCC partners from the slump in oil and gas prices. National Centre for Statistics and Information (NCSI) data, issued by Oman News Agency on 30 January, recorded a 14.2% year-on-year decline in gross domestic product (GDP) – to OR20.09bn ($52.2bn) at market prices – in January-September 2015.

Heeding advice from its growing number of public relations advisers, the new generation Saudi leadership has decided to adopt a more public face, countering criticism over its campaign to defeat the Houthis and their allies in Yemen, the execution of dissident cleric Sheikh Nimr Al-Nimr and the economic and social impact of the plummeting oil price. One consequence of this has been the apparent unveiling of ambitious economic reform plans, led by the “privatisation” via an initial public offering (IPO) of parts of Saudi Arabian Oil Company (Saudi Aramco).

Plans to overhaul the economy unveiled in The Economist’s scoop interview with Deputy Crown Prince Mohammed Bin Salman (MBS) offer the prospect of a more open economy that the kingdom’s current dominant policy-maker wants to deliver, and that McKinsey & Company and other advisers believe is essential if Saudi Arabia is to better employ and house its young population.

Qatar is expected to run its first deficit in 15 years in 2016, a sobering reminder that this gas-fuelled economy has its vulnerabilities, even though the fiscal pressures are more moderate than in most other Gulf Co-operation Council (GCC) states. The 2016 budget, approved by Emir Sheikh Tamim Bin Hamad Al-Thani on 17 December, plans for a deficit of $12.8bn (about 7% of GDP), based on an oil price assumption of $48/bbl, a modest cut in current spending and a slight increase in capital spending.

Kuwait is set to register a KD2.3bn ($7.8bn) budget deficit for fiscal year 2014-15, its first deficit since 1999-2000, according to minister of finance Anas Al-Saleh. The budget for the current fiscal year (2015-16) – approved by parliament on 1 July – is based on a much bigger deficit of KD8.18bn, as a result of low oil prices.In a statement to parliament, Saleh said one of the problems was persistent high current expenditure – something about which several senior Kuwaiti politicians have expressed concern.

With the halfway point of 2015 fast approaching, Iraq’s revenues are improving but remain well behind plan. The year began well, with the government passing a budget on 29 January, in contrast to 2014 when it failed to pass a budget at all. The 2015 budget called for roughly $102bn in spending, to be financed by $67bn in oil revenues, $13bn in customs and other tax revenues, and $22bn in debt. Federal oil revenue is the most transparent of these, and figures from the Ministry of Oil (MoO) show that revenues have been rising steadily

The International Monetary Fund (IMF)’s latest Article IV consultation for Oman concluded with a polite restatement of the macroeconomic problems confronting the sultanate, and the recommendation that further fiscal reform is essential, amid continuing pressure on macroeconomic balances from the soft oil price and a tendency towards overspending by the government, to buy social peace. The overall fiscal deficit is projected at 14.8% of GDP in 2015 and seems set to rise further unless the government takes urgent remedial action.

Qatar has moved its fiscal year-end to 31 December from 31 March, and increased the Ministry of Finance’s powers. Law 2 of 2015, issued on 1 March by Emir Sheikh Tamim Bin Hamad Al-Thani, brings Qatar’s fiscal calendar into line with the other Gulf Co-operation Council states, with the exception of Kuwait, which still runs to end-March.Minister of finance Ali Sharif Al-Emadi said the change was aimed at making government operations more compatible with the private sector and international financial institutions.