MUSCAT: The Sultanate of Oman and its fellow peers in the Gulf Cooperation Council (GCC) should press ahead with their fiscal and other structural reform programmes despite windfall earnings from buoyant oil and gas prices, the International Monetary Fund (IMF) has stressed in a new policy paper.
The paper, jointly written by Amine Mati, Assistant Director, and Jerome Vacher, Senior Economist, in the IMF’s Middle East and Central Asia Department, has emphasized that additional revenues flowing from robust energy prices could help the GCC bloc achieve long-term prosperity by maintaining the current pace of reform.
According to the IMF officials, GDP growth for the GCC bloc is expected to more than double, reaching 6.5 per cent in 2022. Higher earnings from hydrocarbon exports, they pointed out, have largely offset the spillover effects of the ongoing hostilities in Ukraine, as well as the impact from tightening global financial conditions. This has contributed to a more positive outlook for GCC economies, they noted.
“Our analysis suggests that GCC countries will save far more resources than during previous episodes because of the fiscal and structural reforms taken in the region. In 2022 alone, the overall fiscal surplus will amount to over $100 billion, as the rise in expenditures — particularly on wages — remains contained so far,” the IMF staffers noted.
The IMF paper however cautioned the GCC states against taking high energy revenues for granted, warning that that “numerous risks still cloud the outlook — notably a slowdown in the global economy”. It encouraged GCC governments to maintain the current “reform momentum” regardless of the level of hydrocarbon prices.
Oman, for its part, continues to stay true to the objectives set out in the Medium Term Fiscal Plan (MTFP), the government’s centerpiece fiscal reform programme that enshrines, among other things, a primary goal to achieve a balanced budget by 2025. It also affirms a commitment to fiscal sustainability and prudent debt management, comprehensive economic diversification and a robust external position.
Significantly, the IMF Policy Paper recommends a comprehensive package of policies for GCC states to implement in response to near-term shocks and long-term challenges. It moots the following:
• Using additional revenues from higher oil prices to rebuild buffers and strengthen policy space
• Prioritising targeted support for the most vulnerable
• Leveraging the progress made on digitalization.
• Keeping medium-term fiscal policy geared towards ensuring fiscal sustainability and increasing savings, through a credible fiscal framework.
• Ensuring a smooth energy transition out of fossil fuels.
• Supporting non-oil revenue mobilization and energy subsidy phase-out, partly to contribute to climate change mitigation ,
• Gradually reducing public sector wage bills and increasing spending efficiency
• Maintaining financial sector stability, which is essential to sustaining strong economic growth.
• Continuing careful monitoring of bank soundness
• Accelerating ongoing structural reforms, including by raising female labour force participation, increasing flexibility for expatriate workers, improving education quality, further leveraging technology and digitalization, enhancing regulatory frameworks, strengthening institutions and governance, and addressing climate change adaptation and mitigation challenges.
• Implementing policies for sustained private sector-led economic growth and diversification.
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