Oil markets have stabilized but
Middle East economies are still feeling the pain of the price collapse that
began more than three years ago.
The Gulf states will barely grow this year, according
to the International Monetary Fund. It has slashed its forecast for GDP growth
across the six members of the Gulf Cooperation Council to just 0.5%, down from
0.9% it forecast in May.
"Oil exporters are continuing to adjust to these
low prices, which have dampened growth and contributed to large fiscal and
external deficits," the IMF said on Tuesday its regional economic outlook.
Oil output in the region has dropped after OPEC and
non-OPEC members agreed to cut supply to boost prices. The agreement runs through March 2018, and some countries have talked about
extending it further.
The IMF based its projections on an average oil price
of $50 a barrel. U.S. crude futures are currently trading at around $54 a
barrel, and Brent crude prices are even higher at $60.
Jihad Azour, director for the Middle East and Central
Asia at the IMF, said regional governments should not view higher oil prices as
a substitute for economic reforms.
"It's important from a policy standpoint to be on
the conservative side and to make sure we are not dependent on the oil
cycle," he told CNNMoney Emerging Markets editor John Defterios.
He urged the Gulf nations to push ahead with plans to
diversify their economies.
"Oil is still an important factor to the
macro-economics of situation in the GCC," Azour said. "But the good
news is that those countries are progressively reducing the weight and the
importance of oil in the function of the economy as well as the financing of
Low oil prices have forced Gulf countries to rethink
their economic strategies. Saudi Arabia, the biggest economy in the region,
last year launched Vision
2030, a blueprint for what the economy should look like in
the next decade.
The government has cut some subsidies, announced new
taxes and lifted a controversial ban on women driving. It also tapped global
bond markets three times in less than a year, borrowing billions to balance its
The Gulf countries, including the United Arab Emirates
and Kuwait, also plan to introduce sales taxes next year.
"The key reforms that are currently contemplated
[such as] the value added tax and the continuous removal of subsidies are
the right direction," said Azour. "Those are the right types of
reforms that allow you to increase your fiscal flexibility with limited impact
The IMF expects Middle East oil exporting countries
beyond the Gulf, including Iraq, Libya, Algeria and Iran, will grow at an
average annual rate of just 2.8% over the next five years, half the rate
achieved in 2016.