Gulf Arab countries acting rightly to tackle oil slump: IMF

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" remains bleak, said IMF official on Monday.

Dr. Masood Ahmed, the Director of the Middle East and Central Asia Department at the International Monetary Fund (IMF) told Xinhua in an exclusive interview Monday 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, 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 Dr. Ahmed. The fact that most GCC countries also increased the price of energy for consumers is also positive, he added.

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 organization 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.

The IMF estimated last year that the 600 billion dollars surplus the GCC members generated between in the years from 2011 to 2014 when the price of oil rallied would turn into 700 billion dollars deficit within five years. Dr. Masood said there was currently no need to modify this scenario.

"If you look at oil markets, medium term projections have not changed that much. Even for the years 2020, and 2021, they are still hovering in the lower 50 dollars per barrel," he said, "there is a lot of uncertainty about the future development of energy prices."

While the GCC states' recent announcement to introduce a unified value added tax (VAT) of fiver percent from January 2018 onward, was another step into the right direction.

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.

"This will require deep structural reforms to improve medium-term prospects and facilitate economic diversification." A proactive policy, rather than a reactive approach in relation to toil price fluctuations was necessary, said the economist.

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 two trillion dollars mega- sovereign wealth fund in order to boost the non-oil sector in the post-oil era.

Despite the measures implemented so far, budget balances will deteriorate nonetheless given the sharp drop in oil prices due to increased oil production in Iraq and post-sanctions Iran.

For 2016, the IMF anticipates that the combined fiscal deficit of the six GCC members would pile to 135 billion dollars to 140 billion dollars, which is lower than the 161 billion dollars deficit as estimated by British bank HSBC for the same period. Endit