Oliver Wyman highlights how Gulf governments can achieve fiscal sustainability

Gulf governments must continue to tackle the challenges of effective fiscal management head-on by developing a 360-degree view of their finances, according to a new report released by Oliver Wyman.

To improve fiscal agility, liquidity management, and budgeting, Gulf governments have been trying to regain control of their finances since 2014 after crude oil prices tumbled to below $40 per barrel.

The Oliver Wyman report titled, Fiscal Management in Gulf Governments: paving the way to sustainability, highlights how the region’s reliance on hydrocarbon exports as a major revenue source induced a fiscal imbalance that governments are now responding to through sustainable, rigorous reforms aimed to reduce spending and boost better economic outcomes.

An effective framework of fiscal management, which was formerly not prioritised, will not only aid Gulf nations balance public finances more effectively, but will also equip them with the processes, capabilities and the infrastructure to better withstand future fiscal shocks and manage finances to reinvigorate their planned economic transformation over the next 10 to 20 years. It further allows for strategic fund allocation across nation development, will optimise control over revenue and help governments improve planning capability to ensure fiscal transparency across government entities.

The report further highlights Oliver Wyman developing a comprehensive approach for governments to achieve fiscal sustainability that covers key dimensions including budget setting, budget control, fiscal planning and fiscal framework set-up.

The solution comprises an in-depth end-to-end fiscal management framework for governments to implement and leverage a 360 degree view of government finances. The fiscal management framework encourages regional governments to take measures enabling a smooth transition of their economic diversification plans. With oil prices now forecasted to remain around $60 to $80 per barrel in the interim, effective fiscal measures will pave the way for regional economies to reduce expenditures and drive productive spending.

“End-to-end fiscal management is crucial for governments to improve their public finances. Many Gulf nations have already recognised the importance of fiscal management and are ready to manoeuvre their finances by investing efficiently in their economies and tackling looming fiscal challenges with more precision,” says Antonio Carvalho, Partner in the Public Sector practice at Oliver Wyman.

“The proposed 360 degree solution will enable policy makers to optimise revenue targets and budget allocation for government entities, review legal budgeting and planning frameworks, control cash and budget management during the fiscal year and build a comprehensive outlook on state obligations and liabilities.”

Key takeaways

• The Gulf region’s reliance on hydrocarbon exports as a major revenue source induced a fiscal imbalance.
• An effective framework of fiscal management will equip governments with the processes, capabilities and the infrastructure to better withstand future fiscal shocks.
• The solution comprises an in-depth end-to-end fiscal management framework for governments to implement and leverage a 360 degree view of government finances.
• Many Gulf nations have already recognised the importance of fiscal management and are ready to manoeuvre their finances by investing efficiently in their economies.