IMF: $100 billion fiscal surplus for Gulf countries in 2022

The International Monetary Fund (IMF) forecasts that the Gulf Cooperation Council (GCC) region will achieve a fiscal surplus of $100 billion in 2022 and projects that the region's GDP growth will double to 6.5% this year.

In a report, Amin Mati, Deputy Director of the IMF's Middle East and Central Asia Department, and senior economist Jerome Vacher noted that the additional revenue from rising energy prices could help Gulf countries sustain the momentum of recently initiated reforms, thus achieving long-term prosperity. The commodity price boom has mitigated the impact of the war in Ukraine and global financial tightening, bringing a more positive outlook for the GCC economies.

The report, seen by Economy Middle East, notes that the GCC region has experienced periods of significant increases in oil revenues in its history. During these periods, countries deepened their dependence on oil and gas, increased wages and public sector employment, expanded social safety nets, and increased capital expenditures. For example, in 2002-2008 and 2010-2014, public sector wage expenditures increased by 51% and 40%, respectively.

The IMF expects that due to the region's fiscal and structural reforms, GCC countries are able to provide significantly more resources than in the previous two periods. In 2022 alone, the overall fiscal surplus will exceed $100 billion, as growing spending, particularly wage-related spending, has so far remained under control. However, the IMF warns that while GCC countries are generally benefiting from rising oil and gas prices, many risks remain outstanding, especially the risk of a global economic slowdown, despite continued price volatility. In this context, it emphasizes that the momentum of reforms initiated in previous years should be maintained regardless of hydrocarbon prices.

The IMF recommends a comprehensive policy mix to address short-term shocks and decisively tackle medium- and long-term challenges. This mix includes: using additional revenue from rising oil prices to rebuild buffers and expand room for maneuver through fiscal policy. Given the availability of fiscal space, priority should be given to supporting the most vulnerable populations while consolidating progress in digital transformation. Continue to guide medium-term fiscal policy towards ensuring fiscal sustainability and increasing savings through a credible fiscal framework. This is crucial for ensuring intergenerational equity and a smooth transition away from fossil fuels in the long term. This trend can be supported by mobilizing non-oil revenues and gradually phasing out energy subsidies, which will also help mitigate climate change. Other supportive measures include gradually reducing public sector wage expenditures and improving spending efficiency, for example, continuing reforms to improve procurement and investment planning.

Maintaining the stability of the financial sector is crucial for sustaining strong economic growth. Due to high oil prices and ample liquidity, which contributes to credit expansion, GCC banks' balance sheets are insulated from global financial tightening. However, bank safety must continue to be closely monitored. Accelerate ongoing structural reforms, including increasing women's participation in the labor market, enhancing the resilience of foreign worker conditions, improving the quality of education, leveraging the potential of technology and digital transformation, strengthening regulatory frameworks, strengthening institutions and governance, deepening regional integration, and addressing climate change adaptation and mitigation challenges. Maintaining economic growth and private sector-led diversification policies remains essential.

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