Despite numerous shocks over the past few years, the GCC region remains a “bright spot” amid global uncertainty, according to Kristalina Georgieva, managing director of the International Monetary Fund.
Unemployment remains low, inflation is under control, major port exports have rebounded and international flight arrivals remain stable, Ms Georgieva told the annual GCC ministerial meeting in Doha on Thursday.
Owing to various positives, the IMF expects GCC economic growth to rebound this year and reach nearly 4 per cent in 2025 as oil production cuts are gradually eased.
“Over the medium term, non-hydrocarbon activity is set to remain strong on the back of ambitious reform efforts,” Ms Georgieva said.
However, she also highlighted some potential risks. “Fluctuations in oil prices and production could reduce financial buffers and have negative spillovers to the non-oil economy,” she said.
The Opec+ group has extended production cuts until the end of 2025 amid the drop in oil prices on concerns of sluggish demand. On June 2, the oil bloc agreed to extend output cuts of 3.66 million barrels per day, which were initially planned to end this year, until the end of next year.
On Wednesday, a panel meeting of Opec+ members decided not to make any changes to its production policy. However, Ms Georgieva said, regardless of oil prices fluctuations, “strong reform momentum should be maintained” in the GCC region while managing risks.
GCC countries, especially Saudi Arabia and the UAE – the region’s two largest economies – are continuing to focus on diversification of their economies, with new projects.
The UAE Central Bank expects the country's economy to expand by 4 per cent this year, an increase from its June estimate of 3.9 per cent, on the back of a boost from its non-oil sector as the Emirates moves forward with its diversification strategy.
Saudi Arabia’s economy is projected to grow to 4.7 per cent in 2025 before averaging at 3.7 per cent in the following years, the Washington-based lender predicted earlier.
Saudi Arabia expects its budget deficit to widen this year and next as it boosts spending to finance its economic diversification agenda under the Vision 2030 plan.
Oman has also enacted reforms to boost and diversify its economy, reducing its reliance on the energy sector, most notably on oil and hydrocarbons.
The Gulf state launched a three-year fiscal stability programme in October 2022 to add momentum to its economic recovery from the pandemic-driven slowdown and support the development of its financial sector.
Ms Georgieva said the GCC goal should be to achieve “digital, green and inclusive growth” while emphasising three reform priority areas.
First, many GCC countries are undertaking consolidation on fiscal policies but more needs to be done to build sufficient savings for future generations. Tax reforms are progressing but need further enhancement, including wider corporate tax reforms. Rationalising public expenditure, such as reducing energy subsidies, is key to fiscal consolidation and supporting the vulnerable, she said.
Second, she said, the progress on diversification needs to be accelerated and the downsides coming with some reforms need to be properly managed. For example, digitalisation is key to the GCC's economic diversification strategy and there are significant investments in the latest technology but it is crucial to manage the associated risks effectively.
Lastly, Ms Georgieva said integration into regional and global trade and financial systems will play an important role in economic diversification. “Foreign investments would not only unlock financing for costly reforms, but also bring know-how and technology,” she added.