Middle East tax regimes risk social backlash next year – Fitch


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DUBAI, December 9 (Reuters) – Countries in the Middle East that have adopted painful tax measures to contain the impact of the coronavirus crisis on their finances risk a political and social backlash next year in the absence of economic improvements, the rating agency Fitch said.

After a severe contraction this year, most of the region’s economies are expected to rebound on growth as oil prices recover and stimulus spending for the COVID-19 pandemic declines.

However, “lower oil prices for longer and other potential consequences of the pandemic raise questions about the long-term social and economic models of the Gulf Cooperation Council (GCC),” Fitch said in a report. this week.

“Painful tax adjustments and the economic dislocation of coronavirus containment measures risk a social and political backlash in 2021 in the absence of economic opportunities and an improvement in living standards to satisfy populations that are still growing rapidly, young people and underemployed, ”he said.

Saudi Arabia, the largest Arab economy and the world‘s largest oil exporter, tripled a value-added tax this year to 15% to offset the blow to its finances from falling oil prices.

Oman – among the weakest financially in the Gulf – has announced plans to introduce VAT next year as part of measures to restore coffers damaged by falling oil prices.

“Social backlash against consolidation and fiscal reforms poses a downside risk to ratings in 2021, particularly in Oman, Saudi Arabia and, to some extent, Iraq, Jordan and Tunisia,” said said Fitch.

In a separate report released this month, the agency said heavily indebted Oman would be likely to underperform against its budget targets, and asset cuts and external financial support will be key to covering its financing needs in the years to come.

Overall fiscal balances for oil-exporting countries in the region are expected to improve next year as oil prices recover to an average of $ 45 a barrel, Fitch said, but deficits will remain large and oil levels will remain high. debt is expected to increase further.

He expects gross sales of GCC foreign debt of $ 50 billion, $ 60 billion in sovereign fund levies and around $ 40 billion in local debt issuance, mostly from Saudi Arabia. (Report by Davide Barbuscia Editing by Peter Graff)

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