By Santhosh V Perumal/Business Reporter
Low oil prices will continue to subdue high health expenditure growth in the Middle East and North Africa (Mena) region, mainly impacting the GCC (Gulf Co-operation Council) markets, according to BMI.
“The overall regional health expenditure is dependent on oil price movements, which have hindered the GCC markets, particularly Saudi Arabia,” BMI said in a report.
Anticipating lower health expenditure growth for the GCC markets over the coming years, it said the oil price boom is over with Brent to average $60 per barrel in 2016-20, a significant drop from the $102 average in 2010-14.
“This poses a major risk to fiscal and external sustainability across the GCC governments. As a result, we expect all Gulf governments to push ahead with austerity measures, cutting back health spending,” it said, however noting that that there are proposed plans and reforms to support spending in the longer term.
Highlighting that oil prices to be instrumental in determining the pace of health expenditure growth in the GCC, it said the slowdown in health spending, following a fall in oil prices since 2014, is already visible, particularly in Saudi Arabia, Oman and Kuwait.
Saudi Arabia, whose economy is heavily reliant on oil revenues, reported health expenditure cut of 2% in 2015 and 1% in 2016 in dollar terms. Before this, Saudi Arabia recorded double-digit growth in most years.
BMI noted that government health expenditure dominates in oil-dependent countries, mainly GCC states, leaving them more vulnerable to falling oil prices.
Government expenditure in Oman, Kuwait and Qatar accounts for more than 80% of health spending, and over 70% of health expenditure in Saudi Arabia and the UAE is sovereign spending. However, North African countries as Egypt and Morocco are far less dependent on government health expenditure.
It estimated that Mena health expenditure rose by just 0.4% to $126.9bn in 2016. Health spending is almost evenly split between the GCC and non-GCC, but the GCC now accounts for a slightly larger share at 52.2%.
BMI also found that the non-GCC health expenditure share has fallen from a high of 60.9% in 2010 to 47.8% in 2016.The GCC recorded more dynamic growth over the last ten years, with a 2006-2016 compound annual growth rate (CAGR) of 10.8%, while non-GCC registered a lower CAGR of 7.9%.
In non-GCC states, health expenditure will be less linked to oil prices, it said, adding over the last five years, there has been an “inverse relationship” between health expenditure and oil prices.
As oil becomes cheaper, health expenditure has risen, reflecting an increase in government revenues, as it becomes cheaper for them to import oil. However, on a country basis, performance has been mixed being that other countries are less dependent on oil, it said.
“The near-term health expenditure growth outlook for most non-GCC states, which tend to be Mena’s oil importers, remains positive, except Egypt which will experience a hard drop in health spending due to the depreciation of the Egyptian pound,” BMI said.
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