UAE: As global oil prices remain lower than expected, the fiscal outlook for many GCC countries is becoming increasingly strained. Emirates NBD, a leading GCC bank, has revised its oil price forecast for 2025 to an average of $68 per barrel, a significant reduction from earlier projections. This downturn signals deeper budget deficits across the region, as the weighted average fiscal breakeven oil price for GCC countries is now set at $74 per barrel. As a result, the bank forecasts a broader budget deficit of 3.6% of GDP for the region in 2025, a sharp increase from the 1% deficit projected for 2024.
However, the UAE is expected to stand out in the face of these fiscal challenges, maintaining a budget surplus of 1.8% of GDP for 2025, albeit smaller than the earlier forecast of 2.7% and significantly reduced from the 3.4% surplus in 2024. Despite the pressure on oil revenues, the UAE’s strong fiscal position is attributed to its ongoing economic diversification efforts and prudent fiscal policies.
UAE’s Diversification Strategy Proves Resilient
Daniel Richards, senior economist at Emirates NBD, highlighted that while lower oil prices will challenge the region’s economies, the UAE’s diversified economy provides resilience. “The negative impact on non-oil growth will be limited in the near term due to investment in diversification-focused programs,” Richards stated. “Lower oil prices only reinforce the importance of strategies such as the introduction of VAT, corporate income tax, and recent tax reforms. Additionally, low debt levels across the GCC countries offer substantial borrowing capacity to manage fiscal deficits.”
The UAE’s economy is underpinned by robust investments in non-oil sectors such as tourism, technology, renewable energy, and infrastructure. Tourism remains a vital engine of growth, particularly with the ongoing development of iconic attractions like Dubai’s Global Village. The UAE’s strategic economic diversification efforts have proven successful in cushioning the country against the volatility of global oil markets.
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For instance, the UAE’s Federal General Budget Annual Report for 2024 shows revenues of Dh65.7 billion ($17.9 billion), with expenditures amounting to Dh64.1 billion ($17.5 billion), resulting in a surplus of Dh1.6 billion ($436 million). For 2025, the UAE government has approved a balanced federal budget of Dh71.5 billion ($19.5 billion), reflecting an 11.5% increase in government spending. Though the federal budget represents only a portion of total public spending, it highlights the UAE’s fiscal strength and the effectiveness of its government revenue collection efforts.
Economists have commended the UAE for its proactive fiscal management, with one analyst noting, “The UAE’s ability to maintain a surplus despite falling oil prices is a testament to its diversification efforts. Investments in non-oil sectors and tax reforms have created a buffer against the fluctuations of the oil market.”
Saudi Arabia Faces Steep Budget Deficits Amid Oil Price Challenges
In contrast to the UAE, Saudi Arabia faces significant fiscal challenges due to its reliance on oil revenues. Emirates NBD projects that Saudi Arabia’s budget deficit will widen to 6.0% of GDP in 2025, amounting to $66.9 billion, up from the previously estimated 5.2%. The country’s fiscal breakeven oil price stands at $97.5 per barrel—far higher than the current price of oil—putting pressure on its public finances. Despite efforts to diversify its economy, Saudi Arabia remains heavily reliant on oil exports, and lower oil prices will result in decreased revenues from this sector.
Saudi Arabia’s government revenue is expected to drop from $335.7 billion in 2024 to $310.4 billion in 2025, largely due to a decline in oil income. However, growth in non-oil revenues is expected to provide some cushion. The Saudi government’s share of Aramco’s dividend, a critical revenue source, is also forecasted to fall from $124 billion in 2024 to $85.3 billion in 2025.
Saudi Arabia’s spending is projected to exceed $377.3 billion, surpassing the government’s budget projection of $342.7 billion. While current expenditure represents a dominant portion of the budget, major initiatives like the NEOM mega-project and Vision 2030 continue to be funded through the Public Investment Fund (PIF), providing flexibility and reducing pressure on the general budget. Karen Young, a senior fellow at the Middle East Institute, acknowledged this approach, stating, “Saudi Arabia’s fiscal outlook remains challenging, but its non-oil revenue growth and alternative funding mechanisms offer some flexibility.”
GCC’s Economic Diversification: Lessons from the UAE
The fiscal pressures facing Saudi Arabia and other GCC countries underscore the urgent need for sustained economic diversification across the region. The UAE’s success in fostering non-oil growth—through initiatives such as Dubai’s D33 economic agenda and Abu Dhabi’s investments in green energy—serves as a model for resilience.
Jim Krane, an energy expert at Rice University’s Baker Institute, emphasized the UAE’s position in the region, stating, “The UAE’s diversified revenue streams and low debt levels give it an advantage in weathering oil price shocks better than its neighbours.” As the GCC countries grapple with lower oil prices, the UAE’s economic diversification strategy offers critical lessons for others in the region.
In The End
While the GCC faces significant fiscal challenges in 2025 due to lower oil prices, the UAE’s ongoing diversification efforts provide a path forward for resilience. The country’s ability to maintain a budget surplus amidst global oil market volatility highlights the importance of diversified revenue streams and prudent fiscal management in safeguarding long-term economic stability.
