## Gulf Cooperation Council: The Economic Outlook and Policy Challenges in the GCC Countries

## Source details

**Canonical URL:** [Gulf Cooperation Council: The Economic Outlook and Policy Challenges in the GCC Countries](https://www.imf.org/en/publications/policy-papers/issues/2017/12/14/pp121417gcc-economic-outlook-and-policy-challenges)

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## Bibliographic details
- Published: December 14, 2017

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### Global outlook and implications for oil demand
- Global growth is forecast at 3.6 percent this year, and 3.7 percent in 2018, compared to 3.2 percent in 2016.
- Risks around this forecast are broadly balanced in the near term, but are skewed to the downside over the medium term.
- The more positive global growth environment should support somewhat stronger oil demand.
- With inflation in advanced countries remaining subdued, monetary policy is expected to remain accommodative.

### GCC growth performance and projections
- GCC countries are continuing to adjust to lower oil prices.
- Substantial fiscal consolidation has taken place in most countries, mainly focused on expenditure reduction; this has weakened non-oil growth.
- Non-oil growth is expected to increase to 2.6 percent this year, from 1.8 percent last year.
- Because of lower oil output, overall real GDP growth is projected to slow to 0.5 percent in 2017 from 2.2 percent in 2016.
- Growth prospects in the medium-term remain subdued amid relatively low oil prices and geopolitical risks.

### Fiscal policy stance and recommendations
- Policymakers have made a strong start in adjusting fiscal policy.
- Recommended policy focus:
  - Continue recurrent expenditure rationalization.
  - Implement further energy price reforms.
  - Increase non-oil revenues.
  - Improve efficiency of capital spending.
  - Further improve fiscal frameworks and institutions.
- The direction of fiscal policy in the GCC is broadly consistent with these recommendations.
- The needed pace of fiscal adjustment varies across countries depending on the fiscal space available.

### Financial sector and liquidity management
- Policies should be geared toward managing evolving liquidity situations in the banking system and supporting the private sector’s access to funding.
- Countries have made progress in enhancing financial policy frameworks.
- Strengthening liquidity forecasting and developing liquidity management instruments will help banks adjust to a tighter liquidity environment.
- Banks generally remain profitable, well capitalized, and liquid.
- With growth expected to remain relatively weak, monitoring of financial sector vulnerabilities should continue to be enhanced.

### Structural reforms, diversification, and labor market policies
- Diversification and private sector development are needed to offset lower government spending and ensure stronger, sustainable, and inclusive growth.
- Required reforms and measures:
  - Step up reforms to improve the business climate.
  - Reduce the role of the public sector in the economy through privatization and PPPs.
  - Increase incentives for nationals to work in the private sector and for private sector firms to hire them.
  - Increase female participation in the labor market and employment to benefit productivity and growth.
- Where fiscal space is available, fiscal policy can be used to support structural reforms needed to boost private sector growth and employment.

*Gulf Cooperation Council: The Economic Outlook and Policy Challenges in the GCC Countries, December 14, 2017.*

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## Content in this bundle

- **Policy Paper**
  - [Policy Paper (Markdown version)](/-/media/files/publications/pp/2017/pp121417gcc-outlook-and-policy-challengs.pdf.md){rel="alternate" type="text/markdown"}
  - [Policy Paper (PDF)](/-/media/files/publications/pp/2017/pp121417gcc-outlook-and-policy-challengs.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/policy-papers/issues/2017/12/14/pp121417gcc-economic-outlook-and-policy-challenges_