Military spending and fiscal deficit post-Arab Spring

After the political uprisings, states across the Middle East and North Africa have been pouring money into certain areas of their economies.

The Arab Spring has opened a Pandora’s Box that poses an existential threat to states in MENA.  The massive social mobilisation and the cost of popular demands for bread, justice and freedom have appeared to be beyond states’ capacity to meet these benchmarks.

These countries have structural fiscal imbalances similar to their skewed political systems. As of 2016, the budget deficit for Saudi Arabia was $87 billion, Egypt’s was $36 billion, Algeria’s was $41 billion and Kuwait’s was at $23 billion. In 2014, the current budget expenditure in Kuwait, Saudi Arabia and Oman, excluding capital expenditure, was 91%, 67% and 78% of the total budget respectively (Aldousry 2016). The governments in the region are excessively spending more on wages and salaries, consequently less is available for capital expenditure. The idea that the governments can create jobs is beyond the limits of the states. These states cannot continue to support the current welfare state without structural changes. For example, the emphasis should be more subsidies to education and health and less on bread subsidies.

These countries are living beyond their fiscal means. They have allocated a significant portion of their budgets on operating budgets, leaving less room to meet the public’s renewal demands. It requires a major overhaul of the system with disguised unemployment.

The countries in the region are faced with two options: either change the social contract and allow the public to be part of the political process with all entails and consequences; the other option is use delay tactics to slow down this process to result in something less than full participation of the citizens in the governing process.

One state instrument useful for slowing down the democratic wave, is a strong the state apparatus. The most relevant apparatus to states in this region is the army. States in MENA are resorting to deterrence and coercive measures to quell and suppress further social mobilisation. In the post-Arab spring era, the state coffers are being spent on weapon acquisition and increasing military spending.

The arms import from 2011 to 2015 are shown in Figure 1. Saudi Arabia, the United Arab Emirates (UAE), and Turkey are leading the region in arms imports. In 2015 alone, Saudi Arabia imported arms equivalent to 12.2% of global arms imports, followed by Egypt at 5 to 7% and the UAE at 4.99%.

Data source: SIPRI

For the period from 2011 to 2014, the total average of $163 billion was allotted to military spending in MENA. Figure 2 shows that the highest military spending country in MENA is Oman,  allocating an average of 14.2% of GDP, while Saudi Arabia spends 9.7 % on average. Israel is at 5.8 % and UAE 5.6%, followed by Algeria, Libya, Iraq and Yemen. These countries are allocating significant resources on military spending despite the serious fiscal crises facing these countries as the price of oil has fallen significantly.

 


Data source: SIPRI
Figure 3 offers a better view of fiscal balances in MENA countries. Except for Kuwait, UAE and Qatar, the rest of the countries are suffering from fiscal imbalances. Oman performed  poorly in 2015 and the same holds for Libya in 2014 and 2015. Given the current oil prices, the oil countries  resort to their sovereign wealth funds. For example, Saudi Arabia withdrew $100 billion in one year to conduct the war in Yemen reducing the fund from $685.6 to $582.4 billion. UAE and Qatar have withdrawn $21 billion and $19 billion, respectively. The non-oil producing countries resorted to value-added taxes, excise and a reduction in social subsidies. These measures more likely will slow down job creation and economic growth. The pressing priority is in fiscal balance entailing austerity measures. Given the political climate, the full effect of these measures hardly can be estimated.

 

Data source:IMF
The Arab Spring not only has shaken the political landscape but also uncovered states’ fiscal matters; states are scrambling to slow down the waves for social change. These waves might be ebbed, but might prove hard to contain. The government is spending in both its bureaucracy, and its military, by importing sophisticated weapons system. Both options are draining on states’ meagre resources. It makes the future options even more costly. In the future, public demands for improving safety nets will be even more expensive to accommodate.

The budget cuts and austerity measures should target defence spending to transfer resources and spend more on education and health. The investment in these sectors will bear fruits in the long-run to have middle class in this tumultuous journey. It might be wise to cut the military spending in order to spend more on social programs and to have versatile social mobility in the region.

The opinions expressed throughout this article are the opinions of the individual author and do not necessarily reflect the opinions of Vision of Humanity or the Institute for Economics & Peace. 

References:

Aldousry, Mohamed (2016) “Fluctuations in oil prices and their impact on the budgets of the Gulf Arab States: a comparison between the eighties crisis and the crisis of the third millennium” Gulf Centre for Development Studies, Kingdom of Saudi Arabia.

IMF, 2016 REGIONAL ECONOMIC OUTLOOK: MIDDLE EAST AND CENTRAL ASIA, International Monetary Fund, Washington DC.

Stockholm International Peace Research Institute (SIPRI). (2016) “SIPRI Year Book 2016” Stockholm Sweden.

Sovereign Wealth Fund Institute (SWFI) (2016). “Fund Rankings” http://www.swfinstitute.org/fund-rankings/

Hamid Ali

Associate Professor

Hamid E Ali is Associate Professor and Chair of the Department of Public Policy and Administration at the American University in Cairo (AUC), and one of the founders of public policy program and former Director of Master of Global Affairs at AUC. Prior to joining AUC, Ali taught at Southern Methodist University and Texas State University. Ali obtained his Ph.D. degree in economics and public policy from the University of Texas at Austin in 2004.

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