As the COVID-19 pandemic's economic damage continues, governments around the world are trying to intervene in the financial sector to stop the bleeding. Many governments are using their central banks to reduce the cost of borrowing by lowering interest rates, or to create stimulus packages that expand government loans to businesses or even direct cash transfers to workers as unemployment benefits or tax relief. Small businesses have been acutely affected by the pandemic as a result of crashed consumer demand as lockdowns continue globally, forcing billions of people to stay home and forgo travel for work or pleasure.

For the Gulf Cooperation Council (GCC) states, directing economic relief through the financial sector has some region-specific challenges. The state looms large over the financial sector in the Gulf, and this crisis is underscoring the limitation of GCC governments to spur organic growth in the private sector.

Direct cash transfers and income tax relief for citizens and residents are not real options in the GCC: There is not personal income tax to refund, and it is not in the long-term interests of Gulf governments to subsidize salaries of foreign workers. There have been some efforts to pay a portion of citizens' private sector salaries and extend grace periods for utility and retail rent payments. (Qatar has announced an $820 million fund from the Qatar National Development Bank to support citizen and foreign private sector worker salaries for the next three months, but this is the exception, not the norm.) There is already evidence that low-wage foreign workers face quarantine in labor camps, often without salaries, access to food and a means of safely social distancing in crowded cafeterias and shared restrooms.

In some ways, an over-reliance on banks to extend lending could lead to an add-on crisis yet to come. The bank sector in the GCC is especially vulnerable because the proportion of loans that local banks extend to the government or to government-related entities has been rising since 2009. According to HSBC analysts and data from central banks and the CEIC, loan claims, or outstanding loans, to the public sector across the GCC doubled from about 12% of claims to 25% of claims between 2009 and 2020.