IMF says it’s encouraged by Gulf’s economic reform plans

The International Monetary Fund said it was encouraged by the efforts of Saudi Arabia and other Gulf Arab oil exporters to repair damage to their state finances as low crude prices slash export revenues.

“I do see in a number of countries action to address the budget deficit,” IMF Middle East and Central Asia department director Masood Ahmed said in an interview. “That gives us encouragement and comfort.”

He was speaking hours before Saudi Arabia’s government was due to announce on Monday a sweeping plan to ensure its economy could survive an era of cheap oil, including spending cuts, tax rises and policies to expand the private sector.

Ahmed said that judging from details of the Saudi plan revealed so far, it appeared “ambitious and comprehensive”. The scale of the plan “measures up to the challenge facing the economy”, he said.

Six months ago the IMF warned that budget reforms being considered by most of the Middle East’s oil exporters were likely to be inadequate, and that countries risked running through their financial reserves.

“Apart from Kuwait, Qatar, and the United Arab Emirates, under current policies, countries would run out of buffers in less than five years because of large fiscal deficits,” the IMF said in a report at that time.

Its latest report on the region, published on Monday, did not repeat that warning, though it said countries still needed to do more to cut budget deficits, rebuild their financial reserves and save enough money for future generations.

Ahmed said Gulf states would still face difficult decisions in carrying out budget reform plans on a sustained basis, and in trying to create millions of jobs for growing populations while reducing the dependence of their economies on oil.

The six-nation Gulf Cooperation Council is heading for a protracted economic slowdown because of the austerity policies needed to curb budget deficits, the IMF report said.

The non-oil part of the GCC economy is projected to grow an average 3-1/4 per cent annually over the next five years, well below a rate of 7-3/4 per cent between 2006 and 2015, it said.

Assuming oil prices stay low in coming years, the fiscal deficits of the GCC and Algeria will total almost $900bn between 2016 and 2021, the IMF calculated.

“Algeria, Bahrain, Oman, and Saudi Arabia will become significant debtors over this period as their financing needs are expected to exceed their current liquid financial buffers,” it said.