## Digital Transformation in the Gulf Cooperation Council Economies (dtigccea)

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### Executive summary: overview and headline findings
- GCC economies have embedded ambitious digitalization strategies within broader economic transformation agendas, often with set targets.
- Analytical approach: three pillars — (1) public sector, (2) financial sector, and (3) corporate sector.
- Novel composite index: Enhanced Digital Access Index (EDAI) — infrastructure quality, digital knowledge, internet usage, affordability, and ICT service quality.
- High-level findings:
  - Significant acceleration in digitalization since the pandemic across sectors and economy-wide measures.
  - GCC average closed EDAI gap with AEs from −0.2 in 2005 to nearly zero in 2022.
  - Strengths: digital infrastructure, affordability, government digitalization maturity (generally on par with or exceeding AE levels).
  - Weaknesses: fintech and corporate-sector digital penetration, digital skills of the labor force, uneven progress across countries (especially for AI preparedness), limited local digital innovation and technological diffusion, and relatively low uptake of digital financial services.
  - Broad adoption challenges: data protection and cybersecurity, potential widening of the digital divide, and job displacement risks (including from AI).

### Progress and gaps under the three pillars
- Public sector (GovTech and GovTech Maturity Index — GTMI):
  - Most GCC countries have GTMI higher than AE average in 2022; UAE large improvements; Saudi Arabia and UAE among top performers.
  - Country caveats:
    - Kuwait: trails in digital citizen engagement and core government systems.
    - Oman: underperforms in digital citizen engagement; recent online public service portal and open data portal updated daily/weekly are promising.
    - Bahrain: improved public service delivery but still below regional standards.
  - UN E-Government Survey 2024: further progress needed on digital participation and human capital, including e-government literacy.

- Financial sector and fintech:
  - Fintech leaders: Saudi Arabia and United Arab Emirates advancing fastest among GCC peers but still lag AEs.
  - Fintech funding and activity:
    - Saudi Arabia fintech funding deals: SAR 19 million (2019) → SAR 1,508 million (2022) — nearly 80 times increase.
    - Number of active fintech companies in Saudi Arabia: 2018 = 10; 2019 = 20; 2020 = 60; 2021 = 90; 2022 = 147; 2023 = 216.
  - Fintech challenges in Saudi Arabia (Fintech Saudi 2023; multiple responses allowed):
    - 60 percent: Financial regulation compliance
    - 51 percent: Funding
    - 43 percent: Talent and recruitment
    - 31 percent: Access to customers
    - 26 percent: Technology regulation compliance
    - 23 percent: Product development
  - Regulatory sandboxes present in Bahrain, Qatar, Saudi Arabia, UAE; coverage of open banking, crypto assets, blockchain, robo-advisory, AI, payments, e-KYC, crowdfunding varies by country.
  - CBDC initiatives: Saudi Arabia and UAE pilots (joint “Aber” initiative); involvement in “mBridge”.
  - Financial inclusion and payments:
    - World Bank Global Findex up to 2021 shows improvements since 2014 but some GCC countries still lag AEs.
    - Saudi Central Bank point-of-sales data: percentage of sales using mobile or card payments in Saudi Arabia reached 94 percent in 2024.
    - Saudi Central Bank financial access survey: number of depositors with commercial banks grew by 30 percent between 2021 and 2023 (to 1,747 per 1,000 adults).

- Corporate sector, industry, infrastructure, skills, and AI:
  - Infrastructure: GCC among best globally in digital connectivity; mobile broadband subscriptions among highest; share of population using the internet and covered by 5G among highest globally.
  - GSMA projection: by 2030, average 5G adoption in the GCC states could reach 95 percent; world average 54 percent.
  - Digital skills shortages:
    - AI specialists in GCC workforce: 1.7 percent (GCC average) vs 5.4 percent (European Union) and 6.9 percent (Singapore).
    - PhDs in AI: about two PhDs per million people (GCC prorated average) vs 25 (OECD average).
    - LinkedIn data (available for Saudi Arabia and UAE): below global average on penetration of “tech skills”.
  - Industry and innovation:
    - Internet retail share of total retail trade in GCC averaged 6 percent in 2021 vs 15 percent in the OECD (PwC 2021).
    - Low share of industries’ inputs sourced from digital industries relative to frontier digitalization countries.
    - Insufficient local production of digital goods/services; reliance on imported technology and services.
    - Recent rapid growth from a low base in apps published in Qatar, Saudi Arabia, UAE.
  - AI adoption and preparedness:
    - McKinsey survey: 62 percent of respondents reported using AI in at least one business function (Chandran and others 2023).
    - GCC better prepared than average EM for AI but lags AEs, with gaps in digital innovation and regulations.
    - Estimated about 40 percent of the global workforce is exposed to AI (Cazzaniga and others (2024)).

### Enhanced Digital Access Index (EDAI): construction and cross-country performance
- Composition and methodology:
  - Five aspects: availability of infrastructure; affordability of access; digital knowledge of the population; quality of ICT services; internet usage (including access to high-speed internet).
  - Indicators rescaled to [0, 1] via min–max transformation; equal weights applied to subindices; higher score closer to 1 indicates higher digitalization.
- Trends and cross-country variation (2005–2022):
  - GCC average EDAI gap with AEs improved from −0.2 in 2005 to nearly zero in 2022.
  - GCC on par with AEs in infrastructure, affordability, and digital knowledge; gaps persist in internet usage (especially fixed high-speed subscriptions) and ICT service quality.
  - Country notes:
    - ICT service quality: Bahrain, Qatar, UAE perform similarly to or better than AE average.
    - Internet usage and digital knowledge: Saudi Arabia and UAE notably more advanced; Oman improved digital knowledge from a low base; Bahrain, Kuwait, Qatar marginal improvement; declines in ICT service quality observed in Kuwait, Oman, Saudi Arabia between 2019 and 2022 (possible network congestion).
  - Affordability: GCC average on par with AEs until 2020; marginal gap opened in past two years potentially due to high digital expenditures, limited telecom competition, and geography-related deployment costs.

### Empirical evidence: digitalization’s macrofinancial effects
- Effect on financial inclusion (Global sample and EM subsample; Findex 2011–2021):
  - Regression (1) Full Sample:
    - EDAI coefficient: 0.60*** (0.08)
    - Observations: 533; Number of countries: 155; Corrected R2: 0.94; Within-panel R2: 0.74
  - Regression (2) EMs subsample:
    - EDAI coefficient: 0.76*** (0 .16)
    - Observations: 239; Number of countries: 69; Corrected R2: 0.86; Within-panel R2: 0.30
  - Regression (3) EMs with GCC interactions:
    - EDAI coefficient: 0.77*** (0 .17)
    - Observations: 239; Number of countries: 69; Corrected R2: 0.85; Within-panel R2: 0.28
  - Selected control coefficients:
    - Control of corruption: 4.94 (Full), 8.39* (EMs), 8.36* (EMs with interactions) with std errs (3.04), (4.79), (4 . 81).
    - CPI inflation (period average, percent): 0.01*** (Full) (0.00); 0.01** (EMs) (0.01); 0.01** (EMs with interactions) (0.01).
    - GDP growth (n − 1): −0.49*** (Full) (0 .13); −0.63*** (EMs) (0.20); −0.62*** (EMs w/ interactions) (0.20).
  - Country heterogeneity:
    - Bahrain interaction term: 11.4 (positive and significant at 1 percent).
    - Saudi Arabia interaction term: 1.1 (positive and significant at 5 percent).
    - Kuwait: lower-than-EM average effect.
    - UAE: positive but insignificant coefficient.
  - Interpretation: a one-unit increase in EDAI associated with 0.6–0.77 percentage point increase in average financial inclusion; effects stronger in EMs and heterogeneous across GCC countries.

- Digitalization and banking sector resilience (panel regressions on bank profitability metrics):
  - Crisis shocks coefficients (selected):
    - Return on Equity (Full): −13.55*** (3 .16)
    - Return on Equity (EMs): −19.93** (8.07)
    - Return on Assets (Full): −1.82*** (0.55)
    - Return on Assets (EMs): −2.39*** (0.84)
  - EDAI main coefficients (selected): small/insignificant on levels.
  - Crisis shocks * EDAI interaction:
    - (1) 0 .12** (0.05)
    - (2) 0.25* (0 .13)
    - (3) 0.02** (0.01)
    - (4) 0.03*** (0.01)
  - Panel details:
    - Observations: 1,729; 859; 1,715; 855
    - Number of countries: 129; 65; 129; 65
    - Corrected R2: 0.38; 0.35; 0.46; 0.46
  - Interpretation: digitally advanced banking sectors attenuate the negative impact of crisis shocks on bank profitability; association stronger in EM subsample.

- Digitalization and government effectiveness (cross-country OLS with GTMI and PSDI):
  - GTMI coefficient: 1.03*** (0 .11)
  - PSDI coefficient: 0.95*** (0 .11)
  - Controls (selected):
    - CPI inflation (scaled by 1/100): −0.09* (0.04); −0.11*** (0.06)
    - Trade (percent of GDP, scaled by 1/100): 0.13*** (0.03)
    - Control of corruption: 0.61*** (0.03); 0.58*** (0.03)
  - Observations: 320; R2: 0.91 (both specifications)
  - Interpretation: improved public sector digitalization (GTMI or PSDI) is significantly associated with higher government effectiveness; mechanisms include streamlined administrative processes, automation, transparency, and better data management.
  - GCC-specific implication: many GCC countries have high GTMI ranks; marginal gains remain meaningful (example: for Saudi Arabia and UAE with GTMI >95th percentile, potential marginal gains around 0.53 compared with global average 1.03).

- Digitalization and economic growth (panel regressions on GDP per capita, scaled):
  - EDAI:
    - Full sample: 0.70*** (0.04)
    - EMs: 0.68*** (0.07)
  - Controls (selected):
    - CPI inflation: −0.06** (0.02) Full; −0.13** (0.05) EMs
    - Control of corruption: 7.34*** (1.31) Full; 6.79*** (1.86) EMs
    - Government effectiveness: 14.60*** (1.37) Full; 11.43*** (1.87) EMs
    - GDP growth (t − 1): 0.22*** (0.07) Full; 0 .17 * (0.10) EMs
    - Crisis shocks: −2.36** (1.01) Full; −3.47** (1.63) EMs
  - Panel details:
    - Observations: 3,281; 1, 616
    - Number of countries: 175; 86
    - Corrected R2: 0.99; 0.98
  - Interpretation: a one-unit increase in EDAI (approximately GCC’s average annual improvement during 2017–21) associated with a 0.68–0.7 percentage point increase in GDP per capita growth.

### Firm-level corporate sector resilience (local projection results)
- Data and method:
  - Sample: publicly listed firms in all six GCC countries, 2001:Q1–22:Q4.
  - Method: Jordà’s (2005) local projection method.
  - Digital intensity proxies: intangible assets share; share of industry inputs from digital industries (Input-Output Tables); composite index by Calvino and others (2018).
- Key empirical outcomes:
  - Aggregate: average revenue declines by 6 percent one quarter after a recession hit; cumulative revenue falls to about 9 percent below preshock level after six quarters.
  - For firms in industries with larger intangible capital shares: revenue bounces back to about 2 percent above preshock level after six quarters.
  - Firms in industries with high digital-input intensity and firms in digital-intensive industries suffer smaller revenue losses and recover faster.
  - Recovery in profitability (ROE) faster and more robust for more digital-intensive firms.

### Digital deep dive: Saudi Arabia (selected quantitative highlights)
- Digital economy and infrastructure indicators:
  - DE contribution to real GDP: 2018 = 11.5 percent; 2022 = 14 percent; 2025 target = 16 percent.
  - ICT contribution to real GDP: 2018 = 3.3 percent; 2022 = 3.5 percent; 2025 target = 4.6 percent.
  - Internet user penetration: 2015 = 68.5 percent; 2023 = 99 percent; 2025 target = 97 percent — Surpassed target.
  - Fixed broadband (FBB) speed (Mbps): 2020 = 66; 2022 = 109.8; 2025 target = 377 — Surpassed target.
  - Mobile broadband (MBB) speed (Mbps): 2019 = 55.5; 2022 = 214.6; 2025 target = 70 — Surpassed target.
  - Data center capacity (MW): 2020 = 68; 2022 = 127; target = 2150.
- FBB and crisis mitigation (ITU-based analysis):
  - Using ITU brackets, extracted coefficients for GDP per capita change per 1 percent increase in COVID-19 deaths:
    - −0.024 percent for 2017 FBB bracket
    - −0.021 percent for 2019 FBB bracket
  - Actual GDP per capita (PPP) decline in 2020: 6.32 percent.
  - Counterfactual with 2017 FBB penetration: estimated fall −6.82 percent.
  - Inferred mitigation: FBB investment helped mitigate fall in GDP per capita (PPP) by 0.54 percentage point.
  - Other outcomes during pandemic:
    - Approximately 98 percent of students able to join online schooling platform (global average cited: 50 percent).
    - Over 95 percent of businesses operated or switched to online trading.

### Cybersecurity and data protection: regulatory status across GCC (Annex 1 summary)
- By end-2022, all GCC countries enacted data protection laws and established authorities for regulation and guidance.
- Country highlights (selected):
  - Bahrain: National Cybersecurity Strategy 2017; Law No. 30 of 2018 PDPL (came into force August 1, 2019); Personal Data Protection Authority issued 10 ministerial resolutions on March 17, 2022.
  - Kuwait: Communication and Information Technology Regulatory Authority established 2014; cybersecurity strategy 2017–20; Data Privacy Protection Regulation 2021.
  - Qatar: Cybercrime Prevention Law 2014; Personal Data Privacy Protection Law 2016 (first GCC member state to issue generally applicable data protection law).
  - Oman: Cybercrime Law 2011; Personal Data Protection Law 2022 (consolidated Electronic Transactions Law 2008).
  - Saudi Arabia: Cybercrime Law 2017; Personal Data Protection Law 2020; Saudi Data and AI Authority established 2020.
  - UAE: Cybercrime Law 2012; New Cybercrimes Law 2021 (took effect January 2, 2022); Personal Data Protection Law 2021 (took effect January 2, 2022).

### EDAI composition: subcategories and data sources (Annex 2 summary)
- Affordability: ITU fixed-broadband and mobile data/voice baskets (detailed baskets by year and consumption levels).
- Infrastructure: population coverage by 4G/LTE, 3G, mobile cellular subscriptions per 100 people, aggregate fixed-line measures (ITU, WDI).
- Internet usage: active mobile-broadband subscriptions per 100, fixed high-speed subscriptions per population, proportion of individuals using internet in past three months (ITU).
- Knowledge: schooling and literacy indicators, individuals with basic ICT skills (UNESCO, WDI, ITU).
- Quality: international bandwidth per person, lit/equipped capacity per person, ratio of unsuccessful mobile-cellular calls (ITU).

### Data set coverage (Annex 3 summary)
- EDAI time series: 2000–21 (ITU and IMF staff).
- Key datasets and temporal coverage include:
  - Financial inclusion and digital payments — Findex — 2011, 2014, 2017, 2021.
  - Bank soundness indicators (ROA, ROE) — FSI, IMF — 2000–21.
  - GovTech Maturity Index and subindices — World Bank — 2020, 2022.
  - International bandwidth, ICT skills, 4G coverage, internet usage, fixed and mobile subscriptions — ITU/WDI — various years, generally 2000s–2022.
  - Macroeconomic controls (GDP growth, inflation, fiscal balances, trade openness) — WEO, IMF — 2000–22.
  - Sectoral and trade measures — UNCTAD, Trade in Value-Added — 2000–21.

### Policy priorities and recommended actions (verbatim directions preserved)
- Overarching objective: decisive implementation of comprehensive reform agendas to bridge the digital divide and ensure labor market inclusiveness.
- Public sector:
  - Further leverage digitalization to enable a more open, effective, and transparent public sector.
  - Use ICT to engage citizens in design, delivery, evaluation of services; promote a data-driven culture and open data; address digital divides and avoid new forms of exclusion.
- Financial sector:
  - Balance fintech opportunities and risks; apply activity- and entity-based regulations proportional to size/complexity/risks.
  - Strengthen data privacy and cybersecurity; foster industry-led fintech to enhance competition; cooperate on cross-border payments and regional frameworks.
  - If deploying CBDCs, ensure robust regulatory frameworks and study implications for monetary policy and financial stability.
- Corporate sector and labor market:
  - Enhance digital skills via education and training; recognize job displacement and skill mismatches; provide well-targeted social safety nets to support displaced workers; promote digital-skill upgrades to facilitate job transitions.
  - Alleviate SME financing constraints to adopt technologies; invest in digital infrastructure, R&D, e-commerce, local production, and electronic payment systems.
  - Streamline regulations and enhance legal environment including data and intellectual property rights protection.
- Cybersecurity and trust:
  - Continue legal/regulatory reforms for cybersecurity and data privacy; use risk management frameworks for policy development; increase transparency on uses of personal data and enhance user access/control; support digital consumers against fraud, identity theft, misleading practices, and dispute resolution.

*Source: Executive Summary and selected excerpts, Digital Transformation in the Gulf Cooperation Council Economies (IMF Departmental Paper).*

### Executive Summary.................................................................................................v

### Executive Summary

### Overview
- The Gulf Cooperation Council (GCC) economies have embedded ambitious digitalization strategies within their overarching economic transformation agendas, often with set targets.
- This paper reviews the GCC’s progress in digitalization since the pandemic, benchmarks performance against advanced and other emerging market economies, and assesses the effect of enhanced digital adoption on macrofinancial outcomes.
- A three-pillared approach is used covering (1) the public sector, (2) the financial sector, and (3) the corporate sector.
- A novel composite index—the Enhanced Digital Access Index (EDAI)—is constructed, encompassing infrastructure quality, digital knowledge, internet usage, affordability, and quality of information and communications technology services.

### Progress and gaps in digitalization
- Significant acceleration in digitalization since the pandemic is evident across sectors and economy-wide measures.
- Notable achievements:
  - Extensive development of digital infrastructure, improving digital access and connectivity.
  - Government digitalization maturity generally on par with or exceeding advanced economy (AE) levels.
  - Fintech activities driven by a dynamic start-up ecosystem and a sharp increase in investment.
- EDAI findings:
  - The GCC, on average, has closed its gap with AEs on the overall EDAI, with strengths particularly in digital infrastructure and affordability.
- Remaining gaps and challenges:
  - Progress is uneven across sectors and countries in the GCC, especially with the rise of artificial intelligence (AI).
  - Larger gaps relative to AEs in fintech and digital penetration of the corporate sector.
  - Uptake of digital financial services remains relatively low.
  - Overall digital skills of the GCC labor force are seen as insufficient and a main hindrance to further fintech and broader digitalization advancement.
  - Further development of fintech and digitalization regulations is necessary to close regulation gaps with AEs.
  - Limited local digital innovation and technological diffusion constrain industry integration of digital inputs.
  - In AI preparedness, the GCC is generally better positioned than an average emerging market but still lags AEs, particularly in digital innovation and regulations.
  - Broad digital adoption introduces challenges related to data protection and cybersecurity, a potential widening of the digital divide, and job displacement risks (including because of AI).

### Empirical findings on macrofinancial effects
- Digital advancement is statistically significantly associated with improved financial inclusion.
- Digitally advanced banking sectors were more resilient during the global financial crisis and the pandemic, benefiting from operational efficiencies and expanded customer engagement.
- Higher digital maturity in the public sector is associated with significant improvement in government effectiveness.
- In the corporate sector, firms in more digitally intensive industries tend to recover faster from economic downturns.
- Economy-wide analysis finds a positive association between digitalization and economic growth and resilience to shocks.

### Policy priorities and recommendations
- Comprehensive strategies are needed to accelerate digitalization by upgrading regulatory frameworks, enhancing digital skills, fostering a dynamic innovation ecosystem, and ensuring labor market inclusion.
- Priorities include:
  1. further leverage digitalization to enable a more open, effective, and transparent public sector;
  2. balance opportunities and risks associated with fintech and increase market scalability;
  3. enhance digital skills and digital adoption, with adequate social safety nets in place to support displaced workers and appropriate training to facilitate their job transitions; and
  4. create an enabling environment to further digital penetration.
- Continued efforts to strengthen cybersecurity and trust would support the ongoing digital transformation momentum.
- Decisive implementation of the GCC countries’ comprehensive reform agendas—with a special focus on bridging the digital divide and ensuring labor market inclusiveness—will support further digitalization.

### Selected national digitalization targets (as reported)
- DE Contribution to GDP
  - Oman: DE contribution to real GDP2 % (2021)10% (2040)
  - Qatar: DE contribution to non-oil GDP4 . 5% (2017)7. 8 %   (2 0 3 0 )
  - Saudi Arabia: DE contribution to real GDP11. 5 %   (2 018)16% (2025)
  - United Arab Emirates: DE contribution to non-oil GDP9.7% (2022)19.4% (2032)
- Digital Government Services
  - Bahrain: Digitalization of government servicesn/a (2022)Increase by 200 ser vices (2026)
  - Kuwait: Digitalization of government servicesn/a (2023)90% (2027)
  - Oman: Ranking in the UN E-Government Development Index50th (2020)10th (2040)
  - Qatar: Digitalization of government servicesn/a (2022)90% (2030)
  - Saudi Arabia: Ranking in the UN E-Government Development Index31s t (2022)5th (2030)
  - United Arab Emirates: Digitalization of government servicesn/a100% (2025)

*Source: Executive Summary, Digital Transformation in the Gulf Cooperation Council Economies (IMF departmental paper).*

### 2. Progress on Digitalization:

### 2. Progress on Digitalization: Where Do GCC States Stand?

### A. Key Pillars of Digitalization
- Digitalization assessed across three pillars: public sector, financial sector, and corporate sector and labor market.
- Public sector:
  - Benefits: strengthen data collection/analysis, manage public finance operations, deliver public services.
  - Mechanisms: digital revenue solutions, electronic tax filing, automated budget payments, e-procurement, improved targeting in education/health/social assistance.
  - Role: complements structural fiscal reforms (IMF 2020).
- Financial sector:
  - Benefits: automates traditional banking procedures (loan approval, asset management), improves service speed, enables instant and secure digital payments, reduces processing times and transaction costs, can help mitigate adverse effects of recessions on bank profitability.
  - Wider impact: promotes financial inclusion, particularly for rural or remote households.
- Corporate sector and labor market:
  - Digital adoption expands beyond websites/online commerce to production optimization and customer insights.
  - Channels to boost firm performance: better access to customers, improved product quality, price flexibility, knowledge sharing, improved production processes (Elding and Morris 2018).
  - Employment effects: growth in ICT specialists/ICT task-intensive occupations contributed significantly to new employment; overall employment effect is less certain.
  - Risks: automation and AI could displace jobs in manufacturing, administrative support, customer service; potential to increase long-term productivity and labor force participation; could reduce gender gaps (Dabla-Norris and others 2023).

### B. GCC Digitalization Progress under Key Pillars
- GovTech and public sector:
  - GCC states rank among the top globally on the GovTech Maturity Index (GTMI).
  - GTMI components: Core Government Systems Index (CGSI), Public Service Delivery Index (PSDI), Digital Citizen Engagement Index (DCEI), GovTech Enablers Index (GTEI).
  - Most GCC countries have a higher GTMI than the AE average in 2022; notable progress since the onset of the pandemic.
  - United Arab Emirates was the only GCC country with a GTMI score comparable with an average AE prior to pandemic; large improvements since.
  - Substantial progress highlighted in Bahrain, Kuwait, and Saudi Arabia.
  - Country-specific notes:
    - Bahrain: sharp reduction in government operational costs and significant time savings from increased government transactions via digital channels; Tawasul platform enhanced (Government of Bahrain 2023).
    - Saudi Arabia: progress driven by Vision 2030 efforts to enhance digital economy and government services (WEF, MCIT, and TFC 2023).
  - Unevenness across GCC:
    - Kuwait trails in digital citizen engagement and robustness of core government systems.
    - Oman underperforms regional benchmarks in digital citizen engagement and saw a decline in 2022 vs 2020; recent online public service portal and open data portal updated daily/weekly are promising.
    - Bahrain improved public service delivery in 2022 but still below regional standards.
  - UN E-Government Survey 2024: GCC countries can make further progress on digital participation and human capital, including e-government literacy.

- Fintech and financial sector:
  - Fintech leadership:
    - Saudi Arabia and United Arab Emirates advancing fastest in fintech among GCC peers but still lag AEs.
  - Fintech investment:
    - The value of completed fintech funding deals in Saudi Arabia increased by nearly 80 times between 2019 and 2022 (from SAR 19 million to SAR 1,508 million).
    - Bahrain had sizable fintech funding deals disclosed in 2022.
  - Fintech challenges reported in Saudi Arabia (Fintech Saudi 2023; multiple responses allowed):
    - 60 percent: Financial regulation compliance
    - 51 percent: Funding
    - 43 percent: Talent and recruitment
    - 31 percent: Access to customers
    - 26 percent: Technology regulation compliance
    - 23 percent: Product development
  - Fintech hub rankings and activity:
    - GCC cities appear among top fintech hubs in the Middle East region (e.g., Dubai, Riyadh, Abu Dhabi, Jeddah, Manama).
    - Fintech funding in the GCC shows growth across 2017–2022 (Bahrain, Saudi Arabia, United Arab Emirates).
    - Number of active fintech companies in Saudi Arabia increased across 2018–2023 (2018: 10; 2019: 20; 2020: 60; 2021: 90; 2022: 147; 2023: 216).
  - Regulatory coverage (as of November 2024):
    - Regulatory sandbox presence: Bahrain, Qatar, Saudi Arabia, United Arab Emirates, and others.
    - Open banking, crypto assets, blockchain, robo-advisory, AI, payments, e-KYC, crowdfunding coverage varies by country; Bahrain, Saudi Arabia, and United Arab Emirates have more comprehensive fintech regulatory coverage; Kuwait, Oman, and Qatar mainly cover sandbox and payment activities.
  - Digital banking and financial inclusion (World Bank Global Findex up to 2021):
    - Improvements in access to bank accounts, loans, savings since 2014, but some GCC countries still lag AEs.
    - Digital payments and online banking: GCC has considerable scope to catch up with AEs.
    - Saudi Central Bank point-of-sales data: percentage of sales using mobile or card payments in Saudi Arabia reached 94 percent in 2024.
    - Saudi Central Bank financial access survey: number of depositors with commercial banks grew by 30 percent between 2021 and 2023 (to 1,747 per 1,000 adults).
  - Regulatory sandboxes:
    - Bahrain introduced the first GCC regulatory sandbox; followed by Qatar, Saudi Arabia, United Arab Emirates.
  - Central bank digital currency (CBDC):
    - Saudi Arabia and United Arab Emirates launched significant pilot projects such as the joint “Aber” initiative to assess feasibility of a dual-issued digital currency for financial settlements.
    - Saudi Arabia and United Arab Emirates involved in global collaborations such as “mBridge”.
  - Fintech talent:
    - Skilled ICT labor has supported fintech growth in Saudi Arabia and United Arab Emirates.
    - Talent acquisition remains a main challenge for fintech companies; more acute in GCC countries with lower levels of skilled ICT labor forces.
    - Enhancing digital skills across the labor force is a policy priority.

- Digital infrastructure, skills, industry, and innovation:
  - Digital infrastructure:
    - GCC among best globally in digital connectivity.
    - Mobile broadband subscriptions among highest globally; fixed broadband less so.
    - Share of population using the internet and covered by 5G mobile networks is highest globally.
    - ITU ICT Development Index: Saudi Arabia ranks second among the Group of Twenty, after the United States.
    - GSMA projection: by 2030, average 5G adoption in the GCC states could reach 95 percent, compared with developed Asia–Pacific and North America and a world average of 54 percent.
  - Digital skills:
    - GCC lags AEs in high levels of digital talent.
    - AI specialists: GCC average proportion in workforce is 1.7 percent; European Union has 5.4 percent; Singapore has 6.9 percent.
    - PhDs in AI: region has a prorated average of about two PhDs in AI per million people, compared with OECD average of 25.
    - ITU survey: GCC countries rank high on ICT skills, but LinkedIn user data suggest room to increase digital skill intensity across industries.
    - LinkedIn data availability: Saudi Arabia and United Arab Emirates are the only GCC countries with such data and fall below the global average on penetration of “tech skills”.
  - Digital industry and innovation ecosystem:
    - Internet retail share of total retail trade in GCC averaged 6 percent in 2021, compared with 15 percent in the OECD (PwC 2021 estimates).
    - Share of each industry’s inputs sourced from digital industries is relatively low compared with frontier digitalization countries.
    - Insufficient local production of digital goods/services; reliance on imported technology and services.
    - Need for increased research and development and financial resources to support innovation.
    - Recent signs of rapid growth from a low base: Qatar, Saudi Arabia, United Arab Emirates show faster growth in number of apps published than regional peers.
  - AI adoption:
    - McKinsey survey: 62 percent of respondents reported using AI in at least one business function in their organization (Chandran and others 2023).
    - Adoption of AI is low in some high-value functions, such as manufacturing.
    - GCC governments adopted national AI strategies and invested in related infrastructure.
    - Overall readiness: GCC better prepared for AI adoption than average EMs but not yet at AE levels; gaps mainly in digital innovation and regulations.
    - AI market expectations: growth led by machine learning, autonomous and sensor technology, and AI robotics.
    - Realizing AI productivity gains depends on digital infrastructure quality, worker ability to leverage technology, and appropriate regulations, training, and social protection.
  - Patents and innovation output:
    - Total patent applications per million people (three-year average, 2019–21) show lower levels in most GCC countries relative to AE and EM peers.

*Source: dtigccea - 2. Progress on Digitalization (excerpts).*

### 1. Fixed Mobile Broadband Subscriptions

### dtigccea - 1. Fixed Mobile Broadband Subscriptions

### Overview and key digital metrics
- E-commerce market size estimates (Kearney Consulting) and comparison notes:
  - Saudi Arabia’s “E-Commerce Transactions Using Mada Cards” indicated a value of $19.8 billion in 2021, which increased to $41.8 billion in 2023.
- Digital infrastructure and services indicators cited as data sources: International Telecommunication Union; Kearney Consulting; IMF staff calculations.
- The GCC has closed its overall EDAI gap with advanced economies from −0.2 in 2005 to nearly zero in 2022.

### GCC AI strategies and preparedness
- Governments in the GCC have introduced national AI strategies and invested in infrastructure such as supercomputers and data centers.
- Country examples and initiatives:
  - Saudi Arabia: National Strategy for Data & AI.
  - United Arab Emirates: Strategy for AI 2031; development of generative AI (Falcon, Jais).
  - Bahrain, Kuwait, Qatar, Saudi Arabia, United Arab Emirates: initiatives encouraging AI research and innovation with universities, research centers, and private sector.
  - Bahrain and United Arab Emirates: developed principles or guidelines for the ethical use of AI.
- AI preparedness indicators and comparative rankings:
  - The GCC is generally more prepared to embrace AI than an average emerging market (EM).
  - United Arab Emirates and Saudi Arabia ranked 36th and 45th globally, respectively.
  - An estimated about 40 percent of the workforce worldwide is exposed to AI (Cazzaniga and others (2024)).
- Policy implications from AI adoption:
  - AI may complement some occupations (for example, judges) and replace others (for example, telemarketers).
  - Policy measures needed: develop local AI talent, facilitate transitions into AI-complementary jobs, and strengthen social safety nets to support displaced workers.
  - Data availability and regulatory frameworks are crucial to balance risk mitigation with innovation.

### Enhanced Digital Access Index (EDAI): construction and performance
- EDAI composition:
  - Five aspects: availability of infrastructure, affordability of access, digital knowledge of the population, quality of ICT services, and internet usage (including access to high-speed internet).
  - Indicators rescaled to a [0, 1] interval using min–max transformation.
  - Equal weights applied to subindices, aggregated to a single composite index. A score closer to 1 indicates higher digitalization.
- EDAI trends and cross-country variation:
  - GCC average vs AE average:
    - Overall EDAI gap improved from −0.2 in 2005 to nearly zero in 2022.
    - GCC average is now on par with AEs in infrastructure, affordability, and digital knowledge.
    - Persistent gaps remain in internet usage (mainly fixed subscriptions to high-speed internet) and ICT service quality as of 2022.
  - Subindex performance and country variation:
    - On ICT service quality: Bahrain, Qatar, and United Arab Emirates perform similarly to, or better than, the AE average.
    - Internet usage and digital knowledge show the largest cross-GCC differences: Saudi Arabia and United Arab Emirates notably more advanced.
    - Saudi Arabia: significant advancement in digital knowledge from 2019 to 2022 driven by national digitalization initiatives.
    - Oman: improved digital knowledge considerably but from a lower base.
    - Bahrain, Kuwait, Qatar: marginal improvement in digital knowledge in the past decade.
    - Declines in ICT service quality observed in Kuwait, Oman, and Saudi Arabia between 2019 and 2022, possibly related to network congestions.
  - Affordability:
    - Average affordability score of the GCC was on par with AEs until 2020; a marginal gap opened in the past two years.
    - Possible drivers: high digital expenditures linked to rising cost of living; limited competition in telecommunications markets; relatively costly deployment and maintenance of infrastructure due to geography.

### Effect of digitalization on financial inclusion (empirical results)
- Data and methodology:
  - Financial inclusion data: Global Findex database for 2011, 2014, 2017, and 2021; sample of 155 economies.
  - Regression specifications include control variables: inflation (macro stability), sum of exports and imports to GDP (trade openness), government effectiveness, control of corruption; lagged variables used to reduce endogeneity.
- Main regression results (Table 3):
  - Regression (1) Full Sample:
    - EDAI coefficient: 0.60***
    - Robust standard error: (0.08)
    - Interpretation: a one-unit increase in the EDAI is associated with a 0.6 percentage point increase in average financial inclusion.
  - Regression (2) EMs subsample:
    - EDAI coefficient: 0.76***
    - Robust standard error: (0 .16)
    - Interpretation: effect stronger in EMs; a one-unit EDAI increase associated with a 0.76 percentage point increase in financial inclusion.
  - Regression (3) EMs with GCC interaction terms:
    - EDAI coefficient: 0.77***
    - Robust standard error: (0 .17)
  - Selected control coefficients (from Table 3):
    - Control of corruption: 4.94 (Full sample), 8.39* (EMs), 8.36* (EMs with interactions) with respective standard errors (3.04), (4.79), (4 . 81).
    - CPI inflation (period average, percent): 0.01*** (Full), 0.01** (EMs), 0.01** (EMs with interactions) with standard errors (0.00), (0.01), (0.01).
    - GDP growth (n − 1): −0.49*** (Full), −0.63*** (EMs), −0.62*** (EMs with interactions) with standard errors (0 .13), (0.20), (0.20).
  - Model fit and sample:
    - Observations: 533 (Full), 239 (EMs), 239 (EMs with interactions).
    - Number of countries: 155 (Full), 69 (EMs), 69 (EMs with interactions).
    - Corrected R2: 0.94 (Full), 0.86 (EMs), 0.85 (EMs with interactions).
    - Within-panel R2: 0.74 (Full), 0.30 (EMs), 0.28 (EMs with interactions).
  - Notes: Robust standard errors in parentheses. Significance: *** p < 0.01, ** p < 0.05, * p < 0.1.
- Country-level heterogeneity (interaction results and country effects):
  - Bahrain and Saudi Arabia estimated to have larger potential gains from further digitalization in improving financial inclusion.
    - Interaction coefficients when replacing GCC dummy with country dummies:
      - Bahrain interaction term: 11.4 (positive and significant at 1 percent level).
      - Saudi Arabia interaction term: 1.1 (positive and significant at 5 percent level).
    - Kuwait: lower-than-EM average effect.
    - United Arab Emirates: positive but insignificant coefficient.
  - Base effect of EDAI across regressions with individual country dummies ranges from 0.75 to 0.81 at the 1 percent level.

### Policy implications and recommendations
- Leverage digitalization to improve financial inclusion:
  - Further increases in EDAI are empirically associated with higher financial inclusion, especially in EM contexts; targeted digital policies can expand access to formal financial services.
  - Country-specific strategies: prioritize reforms in Bahrain and Saudi Arabia to capture larger-than-average potential gains; assess Kuwait’s lower responsiveness and UAE’s insignificant interaction for tailored policy responses.
- Strengthen competition and affordability in telecommunications:
  - Address limited competition where few state-owned enterprises dominate markets (examples: Ooredoo in Qatar; Saudi Telecom Company in Saudi Arabia; Etisalat and du in the United Arab Emirates) to help contain consumer prices.
- Improve ICT service quality and internet usage:
  - Focus on fixed high-speed internet subscriptions and reduce network congestion to close remaining gaps in internet usage and ICT service quality.
- Build human capital and digital skills:
  - Expand digital knowledge and ICT proficiency, as these are areas with large cross-country variation and are key to enabling digital adoption across the economy.
- Prepare for AI-driven labor market shifts:
  - Develop local AI talent, facilitate occupational transitions toward jobs complementary with AI, and strengthen social safety nets to support displaced workers.
- Balance regulation and innovation:
  - Expand regulatory frameworks that mitigate AI and fintech risks without stifling innovation; improve data availability and governance to support safe AI adoption.

*Source: IMF Departmental Paper — Digital Transformation in the Gulf Cooperation Council Economies (selected excerpts).*

### 1. Coefficient of EDAI*Country Dummy2. Coefficient of EDAI Base Effect by Country

### 1. Coefficient of EDAI*Country Dummy2. Coefficient of EDAI Base Effect by Country

### Country-level coefficients and confidence intervals
- Country codes displayed: GCC BHR KWT SAU UAE
- Coefficients shown in figure (selected values visible in source):
  - —0.14
  - 11.44***
  - —0.79**
  - 1.11**
  - 0.12
- 95% CI (upper/lower) panel values shown (selected values visible in source):
  - 0.77***
  - 0.75***
  - 0.81***
  - 0.75***
  - 0.75***

Note: Asterisk signs represent the level of significance *** p  <  0.01,  **  p < 0.05. Interaction terms for Oman and Qatar were omitted because of limited data of financial inclusion (only 2011 data available). Data labels use ISO country codes. CI = confidence interval; EDAI = Enhanced Digital Access Index; GCC = Gulf Cooperation Council.

*Source: IMF staff estimates.*

### Key implication from country coefficients
- Heterogeneous base effects of EDAI across GCC countries, with statistically significant positive and negative coefficients in the figure (see values above).

---

### B. Digitalization and Banking Sector Resilience

- Research question: effect of digitalization on banking sector resilience during the global financial crisis and the COVID-19 pandemic.
- Method: interaction term (Digital_it × Shocks_it) to ascertain effect of digitalization on banking sector resilience. Control variables similar to previous subsection. Focus on resilience rather than profitability because EDAI is at country level.

Table 4. Effect of Digitalization on Banking Sector Resilience (selected coefficients preserved exactly)
- Dependent variables and samples:
  - (1) Return on Equity (Full Sample)
  - (2) Return on Equity (EMs)
  - (3) Return on Assets (Full Sample)
  - (4) Return on Assets (EMs)

- Crisis shocks:
  - (1) −13.55***
  - (2) −19.93**
  - (3) −1.82***
  - (4) −2.39***
  - Standard errors: (3 .16), (8.07), (0.55), (0.84)

- EDAI:
  - (1) 0.04
  - (2) 0.04
  - (3) −0.00
  - (4) −0.01
  - Standard errors: (0.05), (0.09), (0.01), (0.01)

- Crisis shocks * EDAI:
  - (1) 0 .12 * *
  - (2) 0.25*
  - (3) 0.02**
  - (4) 0.03***
  - Standard errors: (0.05), (0 .13), (0.01), (0.01)

- Other controls (selected):
  - CPI inflation (period average, percent):
    - (1) 0.09
    - (2) 0.02
    - (3) 0.01
    - (4) 0.00
    - Std errs: (0 .13), (0 .17), (0.01), (0.02)
  - Control of corruption:
    - (1) 1.14
    - (2) 2.39
    - (3) −0.04
    - (4) 0.03
    - Std errs: (1.67), (2.15), (0.23), (0.26)
  - Government effectiveness:
    - (1) 3.07**
    - (2) 1.25
    - (3) 0.26
    - (4) −0.05
    - Std errs: (1.54), (1.87), (0 .18), (0.22)
  - Trade (percent of GDP):
    - (1) 0.07***
    - (2) 0.04
    - (3) 0.01**
    - (4) 0.00
    - Std errs: (0.02), (0.04), (0.00), (0.00)
  - GDP growth (t − 1):
    - (1) 0.46***
    - (2) 0.39**
    - (3) 0.04***
    - (4) 0.03*
    - Std errs: ( 0 .11), (0 .18), (0.01), (0.02)

- Constants (selected):
  - (1) 5.66*
  - (2) 9. 8 0 * *
  - (3) 1.47* *
  - (4) 2.23***
  - Std errs: (3.33), (4.44), (0.59), (0.54)

- Panel details:
  - Observations: 1,729; 859; 1,715; 855
  - Number of countries: 129; 65; 129; 65
  - Corrected R2: 0.38; 0.35; 0.46; 0.46
  - Within-panel R2: 0 .1; 0.08; 0 .1; 0.09

- Significance note: Robust standard errors in parentheses *** p < 0.01, ** p < 0.05, * p < 0.1.

Findings:
- Digitally advanced banking sectors tend to be more resilient during the global crisis.
- Interaction (Crisis shocks * EDAI) coefficients positive and significant, indicating that higher EDAI attenuates negative impact of crisis shocks on banking profitability metrics.
- The association is stronger for the EM subsample than for the full sample, suggesting larger gains in GCC banking sector resilience with a given improvement in digitalization.

---

### C. Digitalization and Government Effectiveness

- Objective: study relationship between public sector digitalization and government effectiveness using GTMI and PSDI as sectoral indexes; EDAI correlated with GTMI, PSDI, and Government Effectiveness Index.

Figure 12 correlations (descriptive):
- Positive correlation between EDAI, GTMI, PSDI, and Government Effectiveness.
- GCC countries visualized: SAU, UAE, QAT, OMN, BHR, KWT.

Regression approach:
- Cross-country pooled ordinary least squares regression due to limited year coverage of GTMI and PSDI (only two years).
- Dependent variable: Government Effectiveness Index.
- Controls: inflation, control of corruption, trade openness, financial access. Inflation and trade scaled by 1/100.

Table 5. Effect of Digitalization on Government Effectiveness: OLS Regressions (preserved coefficients)
- Dependent variable: Government Effectiveness
  - (1) GTMI 1.03*** (0 .11)
  - (2) PSDI 0.95*** ( 0 .11)

- CPI inflation (period average, percent), scaled by 1/100:
  - (1) −0.09* (0.04)
  - (2) −0.11*** (0.06)

- Trade (percent of GDP), scaled by 1/100:
  - (1) 0.13*** (0.03)
  - (2) 0.13*** (0.03)

- Control of corruption:
  - (1) 0.61*** (0.03)
  - (2) 0.58*** (0.03)

- Constant:
  - (1) −0.45*** (0.10)
  - (2) −1.40*** ( 0 .11)

- Other details:
  - Regional effect: Yes
  - Year effect: Yes
  - Observations: 320
  - R2: 0.91; 0.91

- Note: Robust standard errors in parentheses *** p <0.01, * p < 0.1.

Findings:
- Improvement in public sector digitalization (GTMI or PSDI) has a significant and positive association with higher government effectiveness.
- Mechanisms: streamlining administrative processes, automating paperwork, reducing waiting times and errors, enhancing citizen engagement, promoting transparency and accountability, strengthening data management to inform policymaking and measure performance.

GCC-specific implications:
- Many GCC countries’ GTMI rank high globally; marginal gains from further public sector digitalization could still be statistically and economically significant.
- All GCC countries except Kuwait have GTMI scores above the 80th percentile globally; Saudi Arabia and the United Arab Emirates above the 95th percentile (ranked third and fourth, respectively).
- Example marginal gain: for Saudi Arabia and the United Arab Emirates (GTMI >95th percentile), potential marginal gains from further public sector digitalization are around 0.53 (compared with global average 1.03).

Figure 14. Pooled quantile regression (selected coefficients)
- Coefficient of GTMI by percentiles (sample values shown):
  - Values plotted include: 1.62, 1.03, 1.05, 0.84, 0.97, 0.53
- Coefficient of PSDI by percentiles (sample values shown):
  - Values plotted include: 1.97, 1.08, 1.00, 0.77, 0.77, 0.86

---

### D. Digitalization and Economic Growth

- Objective: assess effect of digitalization on overall economic growth. Controls include inflation, control of corruption, government effectiveness, trade openness, lagged real GDP growth, crisis shocks.

Table 6. Effect of Digitalization on Economic Growth (preserved coefficients)
- Dependent variable: GDP per Capita, Scaled
  - (1) Full Sample
  - (2) EMs

- EDAI:
  - (1) 0.70*** (0.04)
  - (2) 0.68*** (0.07)

- CPI inflation (period average, percent):
  - (1) −0.06** (0.02)
  - (2) −0.13** (0.05)

- Control of corruption:
  - (1) 7.34*** (1. 31)
  - (2) 6.79*** (1.86)

- Government effectiveness:
  - (1) 14.60*** (1.37)
  - (2) 11.43*** (1.87)

- Trade (percent of GDP):
  - (1) 0.02 (0.02)
  - (2) 0.06* (0.03)

- GDP growth (t – 1):
  - (1) 0.22*** (0.07)
  - (2) 0 .17 * (0.10)

- Crisis shocks:
  - (1) −2.36** (1.01)
  - (2) −3.47** (1.63)

- Constant:
  - (1) 821.11* * * (2.64)
  - (2) 839.67*** (4.95)

- Panel details:
  - Observations: 3,281; 1, 616
  - Number of countries: 175; 86
  - Corrected R2: 0.99; 0.98
  - Within-panel R2: 0.58; 0.54

- Note: Robust standard errors in parentheses *** p < 0.01, ** p < 0.05, * p < 0.1.

Findings:
- Positive and statistically significant correlation between digitalization (EDAI) and GDP per capita growth.
- A one-unit increase in the EDAI (approximately GCC’s average annual improvement during 2017–21) is associated with a 0.68 to 0.7 percentage point increase in GDP per capita growth.
- Crisis has a negative effect on growth, with EMs more vulnerable to shocks.
- Interaction term Digital_it × Shocks_it in robustness check had an insignificant coefficient, suggesting limited average crisis-mitigation effect from digitalization across global and EM samples, though case studies (e.g., Saudi Arabia) may show stronger mitigation where digital investment was substantial.

---

### Box 2. Digital Deep Dive: Saudi Arabia (selected quantitative highlights)

National digitalization progress
- Digital economy contribution to GDP:
  - 11.5 percent in 2018 to 14 percent in 2022.
- Internet user penetration:
  - 68.5 percent in 2015 to 99 percent in 2023.
- ICT sector strategy (2019) progress: 11 of 15 indicators surpassed 2023 targets by 2022.

Selected Box Table 2.1 indicators (preserved table entries)
- DE contribution to real GDP (percent):
  - 2018 = 11.5; 2025 = 16 (target); 2022 = 14
- ICT contribution to real GDP (percent):
  - 2018 = 3.3; 2022 = 3.5; 2025 = 4.6 (target)
- Internet user penetration (percent):
  - 2015 = 68.5; 2023 = 99; 2025 = 97 (target) — Surpassed target
- FBB speed (Mbps):
  - 2020 = 66; 2022 = 109. 8; 2025 = 377 (target) — Surpassed target
- MBB speed (Mbps):
  - 2019 = 55.5; 2022 = 214.6; 2025 = 70 (target) — Surpassed target
- Data center capacity (MW):
  - 2020 = 68; 2022 = 127; 2150 (target)

Digitalization as driver of resilience during COVID-19 (ITU-based analysis)
- Using ITU study mapping, extracted coefficients for GDP per capita change per 1 percent increase in COVID-19 deaths:
  - −0.024 percent for 2017 FBB penetration bracket
  - −0.021 percent for 2019 FBB penetration bracket
- Actual GDP per capita (PPP) decline in 2020: 6.32 percent.
- Counterfactual with 2017 FBB penetration: estimated fall −6.82 percent.
- Inferred mitigation: Saudi Arabia’s investment in FBB helped mitigate fall in GDP per capita (PPP) by 0.54 percentage point.
- Additional crisis outcomes:
  - Approximately 98 percent of students able to join online schooling platform during the pandemic (global average cited: 50 percent).
  - Over 95 percent of businesses operated or switched to online trading during the pandemic.

Box Table 2.2. Four Equations of Structural Model (as presented)
- Aggregate production function:
  - GDP per capita_it = a1 (Capital)_it + a2 (Education)_it + a3 (Broadband_penetration)_it + e_it
- Demand function:
  - Broadband_penetration_it = b1 (Rural_population)_it + b2 (Broadband_price)_it + b3 (GDP per capita)_it + b4 (HHI)_it + e_it
- Supply function:
  - Broadband_revenue_it = c1 (Broadband_price)_it + c2 (GDP per capita)_it + c3 (HHI fixed broadband)_it + e_it
- Output function:
  - ΔBroadband_penetration_it = d1 (Fixed_broadband_revenue)_it + ε_it

Sources referenced within box: ITU (2021); Saudi Arabia Ministry of Communications and Information Technology (data points).

*Source: IMF staff estimates.*

### 1. Real GDP Distribution

### 1. Real GDP Distribution

### Key findings on digital economy contribution
- SAR 73 billion of digital economy GDP was created by leveraging digital infrastructure.

### Simulation of 2020 GDP decline with different levels of FBB penetration
- FBB penetration helped mitigate the effect of COVID-19 on GDP per capita (PPP) by 0.54 percent.
- Chart labels and figures preserved from source:
  - 11.60%
  - 14.50%
  - 2,569
  - 2,533
  - 6.82%
  - 0.54%
  - 6.32%
- Textual interpretation preserved as in source:
  - Expected decline of GDP per capita (PPP) with 2017 FBB levels
  - Economic resilience due to digital infrastructure
  - Actual GDP per capita (PPP) decline
- Sources cited in original: Country authorities’ estimates; Fiber Connect Council Middle East and North Africa; International Telecommunication Union; Oliver Wyman Analysis; and Statista.
- Note from original: Refer to coordination across Ministry of Communications and Information Technology, Communications, Space & Technology Commission, Digital Government Authority, General Authority for Competition, Saudi Central Bank, Water & Electricity Regulatory Authority, and SAMENA Telecommunications Council. For details of the methodology, please see ITU (2021). FBB = fixed broadband; PPP = purchasing power parity.

---

### E. Digitalization and Corporate Sector Resilience: A Firm-Level Analysis

### Empirical approach
- Estimation method: Jordà’s (2005) local projection method.
- Regression specification (as provided in source):
  - Dependent variable: log difference in a performance indicator (revenue, earnings, return on assets, or return on equity) for firm n from country i at quarterly date t over h quarters.
  - Shocks: dummy variable equaling 1 at the start of a technical recession.
  - Digital: measure of digitalization.
  - Digital intensity proxies used:
    1. intangible assets share,
    2. share of each industry’s inputs that come from digital industries (from Input-Output Tables),
    3. composite index by Calvino and others (2018).
- Sample: publicly listed firms in all six Gulf Cooperation Council countries over the period 2001:Q1–22:Q4.

### Firm-level resilience results (preserved numeric outcomes)
- For all GCC firms:
  - Average revenue declines by 6 percent one quarter after a recession hits.
  - Revenue falls further to about 9 percent (cumulatively) below the preshock level after six quarters.
- For GCC firms in industries with larger shares of intangible capital:
  - After a sharp decline, average revenue bounces back to about 2 percent above preshock level after six quarters.
- Firms in industries with high intensity of digital inputs (IOT measure) and firms in digital-intensive industries (Calvino measure) suffer smaller revenue losses.
- Recovery in profitability—as measured by return on equity—also seems to be faster and more robust for more digital-intensive firms.

---

### 4. Conclusion and Policy Implications

### Aggregate assessments
- The GCC has actively embraced digitalization, which is positively associated with:
  - financial inclusion,
  - government effectiveness,
  - private sector resilience,
  - economic growth.
- Measured by a novel composite index—the EDAI—the GCC, on average, is on par with AEs in its overall EDAI score, with strengths particularly in digital infrastructure and affordability.
- Empirical analysis across up to 175 countries shows enhanced digital adoption is positively associated with improvements in financial inclusion and government effectiveness, stronger economic growth, and macroeconomic and financial sector resilience to shocks; relationships often stronger in an EM subsample.

### Policy priorities (as summarized in source; Figure 16 categories preserved)
- Public sector
  - Promotion of digital payments and e-commerce
  - Further enhancements and within-GCC convergence on digital citizen engagement and core government system digitalization
- Financial sector
  - Regulations in line with the evolving digital industry
  - Industry-led fintech development that enhances competition
  - Data privacy laws and cybersecurity to foster trust and mitigate risks
  - Cross-border payment and cooperation to improve market scalability
- Corporate sector and labor market
  - Education and training to enhance digital skills
  - SME finance to adopt new technologies
  - Targeted investments in digital infrastructure, industry, and innovation ecosystem

### Detailed recommendations (verbatim policy directions preserved)
- Leverage digitalization to enable a more open, effective, and transparent public sector:
  - Use ICT more effectively to engage citizens in design, delivery, and evaluation of public services.
  - Promote a data-driven culture that enables open data for transparency, better service delivery, and public participation.
  - Address existing digital divides and avoid new forms of digital exclusion, especially with automation and AI.
- Balance opportunities and risks associated with fintech and increase market scalability:
  - Fintech innovation should be underpinned by careful assessments of benefits and risks, including those to monetary and financial stability.
  - Apply a mix of activity- and entity-based regulations proportional to the size, complexity, and risks of fintech firms.
  - Cooperate on cross-border payment to improve market scalability and develop a regional framework.
  - If deploying CBDCs, put robust regulatory frameworks in place and study implications on monetary policy transmission and financial sector stability.
- Enhance digital skills and digital adoption, mindful of labor market implications:
  - Expand education and training programs to upgrade digital literacy and digital skills of the labor force.
  - Recognize potential job displacement and skill mismatches; provide adequate and well-targeted social safety nets to support displaced workers.
  - Promote digital skill upgrade to facilitate job transitions.
- Create an enabling environment to further digital penetration:
  - Continue investment in digital infrastructure and R&D.
  - Invest in e-commerce, local production, and expansion of electronic payment systems.
  - Alleviate financing constraints faced by SMEs to access new technologies.
  - Streamline regulations and enhance the legal environment, including data and intellectual property rights protection.
- Reduce cybersecurity risks and strengthen trust in digital adoption:
  - Continue legal and regulatory reforms to ensure cybersecurity and protection of data privacy.
  - Use risk management as a framework for further policy development.
  - Increase transparency on uses of personal data and enhance users’ access and control over their data.
  - Support digital consumers facing online information disclosure, misleading practices, fraud and identity theft, product safety, and dispute resolution.

---

### Annex 1. Cybersecurity and Data Protection Regulations in the GCC

### Summary statement
- By the end of 2022, all GCC countries enacted data protection laws and established authorities responsible for regulations and guidance in data protection.

### Annex 2. Composition of the EDAI

### EDAI subcategories and data sources (Annex Table 2.1 preserved)
- Affordability
  - Entry-level fixed-broadband basket (ITU): Combined time series data: from 2008 to 2017, the basket is composed of the cheapest plan providing at least 1 GB of monthly high-speed data (256 kbit/s or higher) from the operator with the largest market share in each economy. From 2018, the basket is composed of the cheapest plan providing at least 5 GB of monthly high-speed data (256 kbit/s or higher) from the operator with the largest market share in each economy.
  - Mobile data and voice high-consumption basket (ITU): Combined time series data: from 2018 to 2020, the basket is based on a monthly usage of a minimum of 140 voice minutes, 70 SMSs, and 1.5 GB of data using at least 3G technology. From 2021, the basket is based on a monthly usage of a minimum of 140 voice minutes, 70 SMSs, and 2 GB of data using at least 3G technology.
  - Mobile data and voice low-consumption basket (ITU): The basket is based on a monthly usage of a minimum of 70 voice minutes, 20 SMSs, and 500 MB of data using at least 3G technology.
  - Mobile cellular low usage basket (ITU): Combined time series data: from 2008 to 2017, the basket is composed of 30 calls and 100 SMSs. From 2018, it is composed of 70 voice minutes and 20 SMSs.
- Infrastructure
  - Percentage of inhabitants who are within range of at least a 4G/LTE mobile-cellular signal, irrespective of whether they are subscribers (ITU).
  - Percentage of inhabitants within range of a mobile-cellular signal, irrespective of whether they are subscribers or users (ITU).
  - Percentage of inhabitants who are within range of at least a 3G mobile-cellular signal, irrespective of whether they are subscribers (ITU).
  - Mobile cellular subscriptions (per 100 people) (WDI).
  - Sum of all active analogue fixed-telephone lines, voice-over-IP subscriptions, fixed wireless local loop subscriptions, Integrated Services Digital Network voice-channel equivalents, fixed public pay phones and satellite-based subscriptions provided to fixed locations that allow for a voice communication, per person (ITU).
- Internet Usage
  - Active mobile-broadband subscriptions per 100 inhabitants (ITU).
  - Fixed subscriptions to high-speed access to the public internet (downstream speeds equal to, or greater than, 256 kbit/s), per population multiplied by 100 (ITU).
  - Proportion of individuals who used the internet from any location in the past three months (ITU).
- Knowledge
  - Gross intake ratio to the last grade of lower secondary general education, both sexes (percent) (UNESCO).
  - School enrollment, primary (percent gross) (WDI).
  - Expected years of schooling (WDI).
  - Adult literacy rate, population 15+ years, both sexes (percent) (WDI).
  - Individuals with basic information and communication technology skills (ITU).
- Quality
  - International bandwidth; in Mbit/s, per person (ITU).
  - Per person lit/equipped capacity of international links in Mbit/s (ITU).
  - Ratio of unsuccessful mobile-cellular calls to the total number of mobile-cellular call attempts in the given year (ITU).

*Source: IMF staff. Note: EDAI = Enhanced Digital Access Index; ITU = International Telecommunications Union; SMS = Short Message Service; UNESCO = UN Educational, Scientific and Cultural Organization; WDI = World Development Indicators.*

### Annex 3. Details of the Data Set

### Annex 3. Details of the Data Set

### Data set: List of variables (Annex Table 3.1)
- Financial inclusion (percent of adults with bank account at a formal financial institution) — Findex, World Bank — 2011, 2014, 2017, 2021
- Digital payments (percent of adults who made digital payments) — Findex, World Bank — 2011, 2014, 2017, 2021
- Return on assets — FSI, IMF — 2000–21
- Return on equity — FSI, IMF — 2000–21
- IMD Digital Competitiveness Ranking — IMD — 2017–2 2
- International bandwidth usage — ITU — 2005–22
- Population covered by a 4G network — ITU — 2012–21
- Individuals with basic ICT skills — ITU — 2010 –21
- Individuals with advanced ICT skills — ITU — 2010 –21
- EDAI — ITU and IMF staff — 2000–21
- Exports of ICT goods — UNCTAD — 2000–21
- Exports of ICT services — UNCTAD — 2000–21
- Exports of digitally deliverable services — UNCTAD — 2000–21
- Imports of ICT goods — UNCTAD — 2000–21
- Imports of ICT services — UNCTAD — 2000–21
- Imports of digitally deliverable services — UNCTAD — 2000–21
- EGDI — UNDESA — 2003–22 (biannual)
- Internet usage — WDI, World Bank — 2000–21
- Fixed broadband subscriptions — WDI, World Bank — 2000–21
- Mobile cellular subscriptions — WDI, World Bank — 2000–21
- Unemployment rate — WDI, World Bank — 2000–21
- Unemployment rate for women — WDI, World Bank — 2000–21
- Labor force participation — WDI, World Bank — 2000–21
- Labor force participation for women — WDI, World Bank — 2000–21
- Private sector credit as percent of GDP — WDI, World Bank — 2000–21
- Control of corruption — WDI, World Bank — 2000–22
- Government effectiveness — WDI, World Bank — 2000–22
- Women Business and Law Index — WDI, World Bank — 2000–21
- Strength of Legal Rights Index — WDI, World Bank — 2000–21
- Trade openness (sum of exports and imports to GDP) — WEO, IMF — 2000–21
- Fiscal balance as percent of GDP — WEO, IMF — 2000–21
- CA balance as percent of GDP — WEO, IMF — 2000–21
- Public spending as percent of GDP — WEO, IMF — 2000–21
- GDP growth — WEO, IMF — 2000–22
- Non-oil GDP growth — WEO, IMF — 2000–22
- Inflation — WEO, IMF — 2000–22
- GDP per capita — WEO, IMF — 2000–22
- GovTech Maturity Index — World Bank — 2020, 2022
- Public Service Delivery Index — World Bank — 2020, 2022
- Digital Citizen Engagement Index — World Bank — 2020, 2022
- Core Government Systems Index — World Bank — 2020, 2022
- GovTech Enablers Index — World Bank — 2020, 2022
- Brent oil prices — Bloomberg — 2000–22

Notes:
- Source: IMF staff compilation.
- Abbreviations as reported in the source: CA = current account; EDAI = Enhanced Digital Access Index; EGDI = E-Government Development Index; FSI = Financial Soundness Indicators database; ICT = information and communications technology; IMD = International Institute for Management Development; ITU = International Telecommunications Union; UNCTAD = UN Trade and Development; UNDESA = UN Department of Economic and Social Affairs; WDI = World Development Indicators; WEO = World Economic Outlook database.

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### Annex 4. Corporate Sector Analysis

### A. Where GCC Countries Stand
- Measures of digital adoption used:
  - Input-Output measure (OECD Input-Output Tables): share of each industry’s inputs sourced from digital industries (physical IT hardware and digital services).
    - Finding: Saudi Arabia (data available) lags countries at the frontier of digitalization by a wide margin.
    - Finding: Domestic value added in foreign final demand remains low for digital industries in Saudi Arabia, despite slight improvement since 2000 (Trade in Value-Added database).
  - Intangible capital share (S&P Capital IQ corporate balance sheet data): share of intangibles in total assets.
    - Finding: Intangible capital is positively correlated with other measures of digitalization and could help reap benefits of digitalization.
    - Finding: Kuwait, Qatar, and the United Arab Emirates rank relatively higher than other GCC countries by this measure.
    - Finding: Industries relying more on intangibles include communication services, information technology, energy, and consumer discretionary.
  - LinkedIn user-generated data: relative frequency of “tech skills” on LinkedIn profiles within each industry (tech skills defined as abilities to use digital services, communication applications, and networks to access and manage information).
    - Finding: Saudi Arabia and United Arab Emirates (data available) lag countries at the frontier of digitalization by a wide margin, especially in the services sectors.

### B. Effect of Digital Adoption
- Model specification:
  - Method: Jordà’s Local Projection method.
  - Left-hand side indicators: firm performance measures — revenue, earnings, return on assets, return on equity for 2001–22 (quarterly data).
  - Shock: dummy variable equaling 1 at the start of a technical recession, computed based on real GDP growth from Haver Analytics.
  - Controls: lags of dependent variable and shock; firm-quarter dummy to control for unobservable time-invariant firm characteristics and firm-specific seasonality; country-sector fixed effects.
  - Endogeneity control: time-invariant measures of digitalization (period averages and similar), after checking that relative digital intensity of industries does not change much over time.
- Digital intensity:
  - Interaction term introduced to estimate effect conditional on digital intensity.
  - Digital intensity measures: inputs from digital industries; intangible capital; composite index by Calvino and others (2018) (subindexes include share of online sales and ICT specialists). Note: Calvino index is based on selected AEs and assumes similar dynamics elsewhere.
  - Annex Table 4.1 shows digital-intensive industries based on these measures (selected industries of 62 industries in Capital IQ database).
- Results (summary):
  - Recovery from economic recessions is faster for firms in digital-intensive industries based on various measures of firm performance.
  - Findings are broadly in line with Copestake, Estefania-Flores, and Furceri 2022 (global sample) and Abidi, El-Herradi, and Sakha 2022 (MENA excluding the GCC sample).

### Annex Table 4.1. Digital-Intensive Industries by Measures (selected industries)
- Industries listed as digital-intensive by one or more measures (Intangibles; Input-Output; Calvino and others (2018)):
  - Aerospace and defense — 1
  - Air freight and logistics — 1
  - Banks — 1
  - Capital markets — 1
  - Commercial services and supplies — 1
  - Communications equipment — 1
  - Consumer finance — 1
  - Containers and packaging — 1
  - Distributors — 1
  - Diversified consumer services — 1
  - Diversified telecommunication services — 11
  - Electronic equipment, instruments, and components — 1
  - Financial services — 1
  - Health care equipment and supplies — 11
  - Household durables — 1
  - Industrial conglomerates — 1
  - Interactive media and services — 11
  - IT services — 11
  - Machinery — 1
  - Professional services — 1
  - Software — 1
  - Specialty retail — 1
  - Transportation infrastructure — 1
  - Wireless telecommunication services — 111

Notes:
- Source: IMF staff.
- IQ = S&P Capital IQ; IT = information technology.

### Impulse-response figure notes (Annex Figure 4.1)
- Sample includes publicly listed firms in all six Gulf Cooperation Council countries during the period 2001:Q1–22:Q4.
- Solid lines represent estimates for the average of all the Gulf Cooperation Council countries.
- Dashed lines represent 95 percent confidence intervals.
- Abbreviations used in figures: ROA = return on assets; ROE = return on equity.

*Source: IMF staff compilation.*

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_Source: https://www.imf.org/-/media/files/publications/dp/2025/english/dtigccea.pdf_