Gulf Countries Should Maintain Reform Momentum, Despite Oil Boom

IMF News, November 29, 2022

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GDP growth for Gulf Cooperation Council (GCC) countries—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE—is expected to more than double, reaching 6.5 percent in 2022, according to the IMF Policy Paper referenced on the page.
Surging commodity prices have limited the spillovers from the war in Ukraine and the impact from tighter global financial conditions, enabling a more positive outlook for GCC economies.
The region has historically responded to rising oil revenues with greater dependency on oil and gas, higher public sector wages and hirings, expanded social safety nets, and increased capital expenditure.

During prior periods of rising oil revenues, public sector wage bills rose substantially:
- 2002-08: public sector wage bill increased by 51 percent.
- 2010-14: public sector wage bill increased by 40 percent.
The IMF analysis suggests GCC countries will save far more resources than during previous episodes because of fiscal and structural reforms undertaken in the region.
In 2022 alone, the overall fiscal surplus will amount to over $100 billion, as the rise in expenditures—particularly on wages—remains contained so far.

Numerous risks cloud the outlook, notably a slowdown in the global economy.
Despite higher, albeit volatile, oil and gas prices, maintaining reform momentum is advised irrespective of the level of hydrocarbon prices.

Use additional revenues from higher oil prices to rebuild buffers and strengthen policy space.
- Given available fiscal space, prioritize targeted support for the most vulnerable, leveraging progress made on digitalization.
Keep medium-term fiscal policy geared towards ensuring fiscal sustainability and increasing savings through a credible fiscal framework.
- Over the long term, this is critical to ensure equity between generations and a smooth energy transition out of fossil fuels.
- Support this through non-oil revenue mobilization and energy subsidy phase-out, which will also contribute to climate change mitigation.
- Other supporting measures include:
- Gradual reduction of public sector wage bills.
- Increasing spending efficiency (for example, continuing reforms to improve procurement and investment planning).
- A proper assessment of the fiscal stance requires fully incorporating sovereign wealth funds’ operations, given their role in diversifying savings from oil revenues and their involvement in national development strategies.

Maintain financial sector stability, which is essential to sustaining strong economic growth.
- High oil prices and abundant liquidity are facilitating credit expansion, and GCC bank balance sheets are currently shielded from tighter global financial conditions.
- Bank soundness should continue to be carefully monitored.

GDP growth projection for GCC in 2022: 6.5 percent.
Historical public sector wage bill increases: 51 percent (2002-08) and 40 percent (2010-14).
2022 overall fiscal surplus: over $100 billion.

Amine Mati and Jerome Vacher, November 29, 2022 — Gulf Countries Should Maintain Reform Momentum, Despite Oil Boom (IMF).