Saudi Arabia, the U.A.E. and their neighbors face a future of slumping income and reliance on debt to support spending; Faster progress with economic diversification and private sector development will be critical to ensure sustainable growth
SoDATA (South Data) — The Arab monarchies of the Persian Gulf risk squandering their $2 trillion in financial wealth within 15 years if economic transformation is not accelerated, according to the International Monetary Fund (IMF).
The international lending institution points out in its latest report that oil demand is nearing peak levels, and the oil market is changing structurally both from the demand and the supply side.
According to the IMF report, international oil companies and producing states have come to recognize that alternative energy sources, alongside greater efficiency, are already eroding demand.
However, while Gulf producers like Saudi Arabia and the United Arab Emirates are developing new industries in preparation for a post-oil era, they’re not moving quickly enough to avoid running out of cash, says the IMF.
“Global oil demand may start falling sooner than expected, putting a strain on the finances of the six-member Gulf Cooperation Council, which accounts for a fifth of the world’s crude production”.
Without decisive economic reforms, the richest Middle Eastern states could exhaust their net financial wealth by 2034 as the region becomes a net debtor, the fund projects. Within another decade, their total non-oil wealth would also be exhausted, the IMF said in the report prepared by a team of its Middle East and Central Asia specialists as well as the research department.
Economic reforms already underway in some countries need to accelerate. Development plans need to shift spending and job creation from governments to the private businesses and develop more non-oil sources of income more quickly.
Director of the IMF’s Middle East and Central Asia Department GCC countries Jihad Azour, said in an interview that these countries would have to be more aggressive in their pursuit of an economic transformation to preserve their current wealth. “If we stop here, it’s not enough”.
Regional governments will likely need to cut spending further, save more and introduce broad-based taxation to make ends meet, the IMF said.
“Saudi Arabia, the U.A.E. and their neighbors face a future of slumping income and reliance on debt to support spending”.
“Faster progress with economic diversification and private sector development will be critical to ensure sustainable growth”.
Originally reported in Bloomberg