(MENAFN- Khaleej Times) The International Monetary Fund (IMF) on Wednesday said modest recovery in oil prices is unlikely to bridge budget deficit of GCC nations and the government will have to keep their momentum to diversify their economies.
Masood Ahmed, IMF director for Middle East and Central Asia, appreciated the efforts of Gulf nations to introduce energy reforms and new taxation measures to generate revenues and reduce dependence on oil and said more taxes are expected to find their way in coming years.
"The combined fiscal deficit of six-nation GCC bloc is nearly $500 billion for next six years and the governments need to introduce new taxes and cut spending. We all know value-added tax is coming, corporate taxes and fees of different kinds are in discussion and beyond that taxes on property and assets are also down the road," Ahmed told Khaleej Times on the sidelines of a Press conference at DIFC in Dubai.
To a question about personal income tax, he said it is 'further down the road' .
"Personal income tax seems to be much further down the road and I don't think it's an area of urgency," he said and declined to comment on the possible timeframe to introduce this levy in the region.
"I don't have timeline because it depends on very much on individual countries to put that together," Ahmed said.
To a question, he said five per cent VAT in 2018 would not discourage expatriates in the region.
"In my view, expatriate workers will not consider five per cent VAT to decide to stay or work in the region. It is really a much bigger package i-e lifestyle, professional opportunities, among others, that the expats are looking at," he said.
Fundamental challenge
The outgoing IMF director, who addressed his last Press conference in his present role, said the fundamental challenge for the GCC states is that they have to diversify their economies as well as create new job opportunities in non-oil sectors.
"Over two million young people are going to come into the GCC labour market in next couple of years and there is need to develop a 'competitive private' sector that could create jobs in new areas," he said.
About the economic outlook for the GCC region, he said it is expected to grow only at 1.75 per cent this year and will increase to three per cent in 2017.
"The UAE is expected to achieve 2.5 per cent gross domestic growth next year compared to 2.3 per cent in 2016," he said.
To a question about the growth in Dubai economy, he said the emirate is expected to grow at 3.3 per cent this year compared to 3.5 per cent in 2015. "The Dubai economy is expected to post 3.6 per cent gross domestic product growth next year," he said.
Abu Dhabi economy on the other hand, he said overall growth in the UAE's capital recorded a sharper decline from 4.3 per cent in 2015 to
"The Abu Dhabi economy is likely to post 1.7 per cent growth in 2017," he said, adding that non-oil growth fell more dramatically from four per cent in 2015 to one per cent this year. It will slightly recover to 1.3 per cent next year, he said.
About the growth in the Middle East, North Africa and Pakistan, he said MENAP is projected to achieve 3.4 per cent growth in 2016 and 2017.
"The slump in oil prices and prolong conflicts continue to weigh on economic outlook of MENAP," Ahmed said.
To a question, he said oil price recovery will definitely help the GCC in terms of the financial numbers, but it doesn't really change the fundamental outlook for the region.
"Despite recent increases, oil prices are projected to remain low over the coming years. The oil is expected to stablise at $60 per barrel in the medium term," he said.
In its regional economic outlook, the IMF cited a breakeven price for the UAE, Saudi Arabia and Qatar at %58.6 billion, $79.7 billion and $62.1 billion, respectively. The report suggests that the UAE, Iraq and Kuwait will be able to see budget surpluses by 2021.
"Oil exporters are making strides in adjusting their fiscal positions, but much remains to be done. In oil importers, macroeconomic stabilisation has advanced thanks to sound policies and lower oil prices, yet reforms need to be accelerated to be able to further boost inclusive growth and jobs," he said.
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