Oil-exporting states of the (Persian) Gulf Cooperation Council are heading “in the right direction” to plug budgetary gaps thanks to fiscal reforms, but more change is still necessary, the International Monetary Fund said Tuesday.
“If they continue on this path in the next three to five years, the level of deficit will be less than 2%” of gross domestic product, IMF regional chief Jihad Azour told AFP in an interview.
“This is going in the right direction,” said Azour, who was in Dubai on Tuesday to launch the IMF update for its regional Economic Outlook for the Middle East and Central Asia.
Revenues in the oil-dependent economies of the six Arab states (Saudi Arabia, Kuwait, UAE, Qatar, Bahrain, and Oman) have nosedived since the price of crude plummeted from its mid-2014 peak, forcing the monarchies to cut expenditure.
Such cuts have included energy subsidies in nations that have traditionally subsidized main services both for their own citizens and also for large populations of expatriate workers.
“Fiscal adjustment is still needed. Additional reforms are still needed, especially on the structural side,” Azour said.
This would be “in order to diversify the economy and to allow the economy to grow outside the oil sector, to create additional jobs as well as to be less dependent on the volatility in the oil market”, he added.
Saudi Arabia unexpectedly announced last week it would reinstate some allowances for civil servants that were cut last year as part of a reduction in expenditure.
Although this could be interpreted as a step backwards in the kingdom’s program to cut spending, the IMF regional chief called the measure “minor compared to the overall trend”.
“Whenever you have a large program of adjustment, you still need to adjust or tweak some measures here and there,” Azour said, referring to the kingdom’s “Vision 2030” strategy to diversify its economy and reduce public spending.
“The Saudi government made strong fiscal adjustments over the past two years and were able to reduce expenditure,” he said, adding that Riyadh has renewed its commitment to achieving a fiscal balance in 2020.
“Given the level of buffers that Saudi has, they can phase in a more progressive way their fiscal adjustment and they can space it over time,” Azour added.