By Elizabeth Broomhall
Spending on social projects to avoid discontent has racked up a huge bill, say economists
Uprisings in the Middle East that gripped the region for the first half of the year have cost the Gulf states approximately $150bn, according to a report by Merrill Lynch Bank of America.
The huge bill has been racked up by extra spending on housing, schools and hospitals by the GCC governments in a bid to avoid widespread discontent, the report said.
"The initial response of GCC policymakers [to the Arab revolt] has been to sharply increase current spending to accommodate social pressures and to pledge intra-regional fiscal transfers to less endowed members," Jean-Michel Saliba, Middle East and North Africa economist for the firm, said in a note.
"We estimate that these extra GCC spending pledges total $150bn [12.8 per cent of GDP] while 2011 appropriations could reach 4.9 per cent of GDP, supporting growth.”
He added however, that spending on social projects alone would not be enough to alleviate the problem of unemployment among GCC citizens.
Private sector growth, spurred by investment and an improved business environment, would also be critical.
"This [social spending] has averted potential disquiet over governance in most countries, though, over a longer-term horizon, economic reforms will be needed to buoy private sector growth and job creation."
He also warned of the dangers of overspending, particularly in Bahrain where hydrocarbon resources could soon be exhausted, preventing it from absorbing the high spend.
The Gulf countries, with the exception of protests in Bahrain and Oman, have largely escaped the popular uprisings which swept across Egypt, Tunisia, Syria, Libya and Yemen throughout the first half of the year.
The UAE, Saudi Arabia and Qatar have since rolled out a slew of measures aimed at improving living conditions for its citizens.
According to reports, the protests were triggered by soaring food prices, high levels of unemployment and a lack of basic community facilities.
In Saudi Arabia, the most populous Gulf state, King Abdullah has unveiled more than $100bn in social handouts since March.
The UAE capital Abu Dhabi has focused predominantly on housing projects, and announced plans to allocate AED7bn ($$1.9bn) from its 2011 budget to Emiratis in the form of housing loans.