Muscat: The Sultanate, along with its peers in the Gulf Cooperation Council (GCC), have received warm praise from the head of the International Monetary Fund (IMF) for their policy actions in response to the economic, fiscal and public health challenges posed by the coronavirus pandemic and the recession preceding it.
IMF Managing Director Kristalina Georgieva nevertheless urged the bloc, on the one hand, to stay the course in continuing to provide sustenance to small businesses and vulnerable communities impacted by the twin crisis, while on the other, to press ahead with long-term strategies to diversify national economies and income sources.
The outlook for the Gulf region will continue to be challenging, the official warned, noting that GDP is projected to contract six per cent in 2020, followed by growth of 2.3 per cent in 2021.
“It is very important to recognise that the region is likely to see, in the medium term, economic scars: unemployed workers, reduced business investment, students who have been out of school — which takes away from productivity in the future by harming the human capital of the region. As you know, we also have to brace for possibly prolonged low oil prices and prepare for advancement towards alternative sources of energy,” she said.
Georgieva made the remarks during a virtual meeting with the ministers of finance and central bank governors of the GCC on Sunday. “We also, as you very well know, recognise that you face large fiscal and external deficits. These projections reflect the combined impact of oil price declines, oil production cuts, and of course, as everywhere else, lockdowns. And they assume continued progress in fighting the virus,” she stated.
The Managing Director hailed the bloc’s “exemplary” efforts in responding to the pandemic. “You have enhanced already-strong public health systems, and that has kept fatality rates in the GCC among the lowest in the world. And that is precious because this crisis is above all a human tragedy. You have taken as good care as possible of your people,” she said.
Furthermore, fiscal packages and liquidity support extended by the Gulf states have helped protect incomes and livelihoods, and the financial sector as well, she said. These “timely and innovative measures” included tax exemptions and deferrals, cash transfers, and subsidies to small and medium-sized enterprises, she noted.
The official stressed in this regard the need for sustained efforts to ease the distress caused by the pandemic and the economic slump. “Keep investing in health systems. Maintain supportive fiscal and monetary policies until we are out of the woods of the health crisis. And increasingly target households and businesses most in need. Then start shifting support away to firms that are likely to succeed and to individuals most in need,” she said.
In her interactions with the bloc’s finance ministers and top bankers, Georgieva reiterated calls for accelerating structural reforms, diversifying revenue sources, and creating opportunities, especially for young people and women. In particular, she noted the Sultanate’s efforts to cut some spending and implement a new Value Added Tax.
The Managing Director also welcomed initiatives by Gulf states to cut “inefficient” fuel subsidies. “All of this is very positive, and it needs to continue. And strengthening social safety nets, improving the management of government assets and liabilities, particularly given the increase in debt. And most important, putting in place robust medium-term fiscal frameworks so we can anchor expectations for stability,” she added.
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