Structural Reform in the Arab Gulf States - Limited Influence of the G20

Abstract

Since summer 2014, the drop in world oil prices has left holes in the budgets of the Gulf Cooperation Council (GCC) members. Thus, in addition to privatising state-owned enterprises, these governments plan to introduce taxation for the first time ever. From the beginning of 2018, a value added tax of 5 per cent will be levied in all six Gulf monarchies. However, systematic taxation has far-reaching consequences: in the Gulf, for instance, citizens have hitherto enjoyed tax exemption and high subsidies but could demand political participation as taxpayers. The G20's influence on these reforms is above all symbolic in nature. Even optimistic predictions do not anticipate the price of oil returning to the level of USD 110 per barrel, which it reached in June 2014. That presents the oil monarchies in the Gulf with enormous challenges. The majority of them spend far more than they earn through the sale of hydrocarbon products. Up to now, the Gulf States have reacted to their growing budget deficits by cutting spending, falling back on financial reserves, reforming taxes, and privatising state-owned enterprises. Taxation requires a reciprocal relationship between a government and its citizens, but the expansion of representative institutions is not a real political option in the Gulf. Instead, the oil-rich authoritarian monarchies will attempt to develop other forms of governance services – such as, enhanced digitalisation, the creation of friend–foe schemes, and the accentuation of the global exclusivity of their own citizens. As the most influential member within the GCC and the only absolute monarchy within the G20, Saudi Arabia will assertively canvass support from among the 20 most powerful countries in the world for its planned structural reforms. However, any support for Saudi reform and regional policy at the G20 summit in Germany in July 2017 should depend on its policies meeting two requirements: respect for the fundamental principles of human rights and international law and the integrative involvement of all relevant states in the region.