The economic growth rate in the GCC region is expected to more than double to 6.5% in 2022, according to the latest report by the International Monetary Fund (IMF).
It also advised the Gulf countries to maintain their reform momentum which was initiated over the past years, regardless of the level of hydrocarbon prices.
The higher commodity prices limited the effects of the Ukrainian-Russian crisis and the impact of tighter global financial conditions, which paved the way for a more positive outlook for the GCC economies.
The Gulf region has experienced different periods of surging oil revenues throughout its history, during which its nations heavily relied on oil and gas, raised wages and hirings in the public sector, widened social safety nets, and increased capital expenditure.
In the 2010-2014 period, the public sector wage bill jumped by 40%, compared to a 51% hike during 2002-2008.
The IMF indicated that GCC countries will save more resources than the ones in previous periods due to the fiscal and structural reforms which have been implemented across the region.
In 2022 alone, the overall fiscal surplus is projected to exceed $100 billion, as the surge in expenditures, chiefly in wages, remains contained in the meantime.
Although the GCC countries leveraged higher oil and gas prices, several risks still affect the outlook, such as the slowing global economic growth, according to the report.
Policies to Maintain Reform Momentum
The IMF proposed a number of policies to be implemented in order to face near-term shocks and address medium-and long-term challenges.
The IMF said the GCC region can deploy the proceeds of extra revenues from higher oil prices and the digitalisation progress to boost fiscal space and rebuild buffers.
In addition, a medium-term fiscal policy should be maintained to ensure fiscal sustainability, increase savings, and provide a smooth energy transition out of fossil fuels. This can be achieved through non-oil revenue mobilisation and gradually eliminating energy subsidies, which will also contribute to climate change mitigation.
Furthermore, preserving financial sector stability is seen required to anchor powerful economic growth.
Meanwhile, the GCC bank balance sheets are protected from more strict global financial conditions because of the hiking oil prices and abundant liquidity, which are promoting credit expansion. Nevertheless, bank soundness should be properly monitored.
The Gulf region should also accelerate the ongoing structural reforms which include expanding the female workforce, increasing flexibility for expatriate employees, enhancing education quality, and more.
Last October, Moody's Investors Service underlined that many companies across the GCC region hold a solid position to ingest interest-rate hikes which lower businesses' ability to repay debts.
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