DUBAI: The International Monetary Fund forecast Monday economic growth in the six-nation Gulf Cooperation Council will be 1.8 percent this year, down from 3.3 percent in 2015, and urged spending cutbacks.
In an interview with AFP, IMF regional chief Masood Ahmed also said the oil-exporting Gulf states should press forwards with diversifying their revenue base faced with persistent low crude prices, reports AFP.
OPEC heavyweight Saudi Arabia is expected Monday to announce reforms aimed at diversifying its almost total economic reliance on crumbling oil prices.
This year will see “a continuation of a low oil-price environment, so we are going to see further—maybe $100 billion or so, in terms of lower revenues from oil exports” Ahmed said of the GCC which groups Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
“This is now beginning to affect not just the financing (of governments) but also the economies in terms of their economic activities,” he said in Dubai, where he launched the IMF’s regional economic outlook update.
Oil prices have shed some 70 percent from their mid-2014 peak value to $40 per barrel. The IMF said markets expect prices to recover modestly to $50 by the end of this decade.
The largest Arab economy, Saudi Arabia, is now expected to grow by 1.2 percent this year, compared with 3.4 percent in 2015.
Economic growth in the UAE will also drop from 3.9 percent last year to 2.4 percent in 2016.
Saudi Arabia, Bahrain and Oman will become “significant debtors” between 2016 and 2021, the IMF report said, with financing needs exceeding their reserves.
The plunge in revenues has forced the Gulf monarchies to make unprecedented fuel and energy subsidy cuts and plan to introduce indirect taxation. They have also scaled back spending on large projects.
“They need to pursue the measures they have started on cutting back and adjusting their spending, and to put in place revenue like the VAT (value-added tax),” Ahmed said.
VAT would add another 1.5 percent to gross domestic product “once it has come into place hopefully by 2018”, he said.
But such measures will take years to implement, and authorities should ensure “implementing them in a sustained way, and building the institutional capacity to be able to do this is going to be important”.
Many Gulf countries can introduce phased adjustments thanks to the “comfortable financial surplus” amassed over years of high oil revenues, he said.
In addition to balancing their budgets, Gulf countries face a major challenge ensuring that the private sector grows in a way that provides employment, Ahmed said.
The private sector is currently slowing “because partly they used to sell many of their products to the government” which is curbing spending.