Dubai, April 25 (IANS) The International Monetary Fund (IMF) welcomed fiscal spending cuts conducted by the Gulf Arab states, although more structural reforms are required as forecasts for the “black gold” remained bleak, said an IMF official on Monday.
Masood Ahmed, director of IMF’s Middle East and Central Asia Department told Xinhua news agency in an exclusive interview that the IMF took positive note of fiscal spending cuts done by the six Gulf Co-operation council (GCC) countries.
Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates and Oman took the move in 2015 after oil prices fell “spectacularly” since mid-2014 by 70 percent to about 40 dollars per barrel (159 liters).
“GCC governments are now acting as they did reduce fiscal spending and announced lower budgets for 2016, too,” said Ahmed.
For 2016, the IMF estimates that the GCC gross domestic product growth will shrink to 1.8 percent, down from 3.3 percent last year.
However, growth would recover to 2.3 percent in 2017, estimates the Washington multi-national organisation IMF which provides financial support to states facing severe fiscal pressure.
The UAE and Saudi Arabia cut state subsidies for fuel and utilities in the second half last year in order to ease pressure on fiscal budgets.
However, the IMF regional director added ensuring that the private sector can create enough jobs for a young and growing population at a time when public sector job creation will be constrained, is equally important.
In order to lure more GCC nationals into the private sector which can further ease fiscal pressure for the public sector, the IMF director proposed that governments should create hand in hand privately owned firms more incentives for employees to switch the sector.
For this purposes, the biggest GCC economy Saudi Arabia has announced earlier this month a $2 trillion mega-sovereign wealth fund in order to boost the non-oil sector in the post-oil era.
For 2016, the IMF anticipates that the combined fiscal deficit of the six GCC members would pile to $135 billion to $140 billion, which is lower than the $161 billion deficit as estimated by British bank HSBC for the same period.