Standard Chartered Bank indicated that Saudi Arabia, the UAE and Kuwait stepped in to provide financial support to Jordan, after the International Monetary Fund's mandated reforms triggered anti-austerity protests and led to the resignation of Prime Minister Hani Al-Mulki. It noted that the three countries pledged $2.5bn in deposits at the Central Bank of Jordan. It added that Qatar followed with a $500m investment pledge that aims to create jobs and address the high unemployment rate. It said that the pledges came amid the country's large fiscal and external financing requirements, high unemployment rate of about 18%, and anti-austerity protests in opposition to IMF-mandated taxes. In parallel, it noted that the IMF welcomed the pledges as a positive step for Jordan and plans to work with the new government. However, it considered that the completion of the IMF's second review will still require Jordan's commitment to fiscal reforms. Further, it considered that the pledges would create space for policy-makers to pursue more politically-acceptable austerity measures. But it considered that the aid would not address Jordan's structural macroeconomic challenges, including its elevated public debt level of 94% of GDP. However, it indicated that it is still unclear if the GCC pledges would replace the IMF support. It said that Jordan's growth prospects depend on the impact of the GCC pledges, the new government's handling of reforms and future negotiations with the IMF.
Source: Standard Chartered Bank

The Institute of International Finance projected Saudi Arabia's real GDP to grow by 2.2% in 2018 and 2.7% in 2019, following a contraction of 0.9% in 2017, supported by higher public spending and increased oil production. It forecast hydrocarbon output to grow by 1.3% this year and by 3.3% next year relative to a contraction of 3.1% in 2017, while it expected non-oil real GDP growth at 2.9% in 2018 and at 2.2% in 2019 relative to 0.9% last year, mainly due to higher public consumption and investment in response to the government's fiscal stimulus. However, it estimated non-oil real GDP growth to have remained below 1% in the first half of 2018, due to weak private investment. Further, it expected the average inflation rate at 3.3% annually during the 2018-19 period, compared to -0.8% in 2017.
                    
In addition, the IIF forecast the Kingdom's fiscal deficit to narrow from 8.9% of GDP in 2017 to 5.8% of GDP in 2018 and 6.5% of GDP in 2019, as higher oil revenues will more than offset the anticipated increase in public spending. It considered that, given the high volatility of oil prices and sustained wide fiscal deficit, a rapid increase in public spending could become unsustainable in case oil prices fell. It projected the public debt level to gradually increase from 17.5% of GDP at end-2017 to 21% of GDP at the end of 2018 and 25.8% of GDP at end-2019, and expected it to remain below 30% by 2020. In parallel, the IIF forecast the current account surplus to widen substantially from 2.2% of GDP in 2017 to 10.6% of GDP in 2018 and 7.6% of GDP in 2019, supported by higher oil export receipts. Also, it projected foreign currency reserves to increase modestly from $496bn at end-2017 to $532bn at end-2018, as net capital outflows will remain large. The IIF noted that the recent tighter monetary policy and rise in borrowing costs, following the U.S. interest rate hike, will partially offset gains from the expansionary fiscal policy. 
Source: Institute of International Finance

The International Monetary Fund considered that the ongoing fiscal adjustment in the Gulf Cooperation Council (GCC) countries would be less costly on the non-oil economy than previously expected. It noted that the drop in oil prices between 2014 and 2016 weighed on the fiscal positions of GCC countries, as their aggregate fiscal account shifted from a surplus of 12.7% of non-oil GDP in 2014 to a deficit of 14.5% of non-oil GDP in 2016. It said that GCC countries responded by reducing government spending to contain the deterioration of their fiscal position, which weighed on non-oil growth, as government spending growth and non-oil GDP growth are positively correlated. However, the Fund considered that the relationship between government spending and non-oil GDP has recently weakened in the region, which means that the significant decrease in public spending has had a limited impact on non-oil growth. In fact, it said that an increase of one percentage point in expenditures was associated with a growth of 1.4 percentage points in non-oil GDP in the 1990-2007 period, while it coincided with an expansion of 0.6 percentage points in non-hydrocarbon GDP in the 2008-16 period. It attributed the weakening of the relationship between government spending and non-oil growth to factors that relate to the economy, which include higher imports, low efficiency of public investments and supply-side challenges. In addition, the IMF said that fiscal consolidation in terms of reduced current spending has a limited impact on economic activity, while investment expenditures have a larger impact on non-oil GDP growth. 
Source: International Monetary Fund