Declining oil prices continue to cause financial hardship and lack of liquidity for member countries of the Gulf Cooperation Council, though data from the International Monetary Fund says there is room for growth in the region.
Oil-producing GCC countries brought in $275 billion dollars less in 2015 than in 2014, causing the countries to dig deep into their reserves to stay afloat, according to the IMF.
The six GCC countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE – are facing slowed fiscal growth as well. Growth was slowed by 3.4 percent in the region in 2014, 3.2 percent in 2015 and is projected by the IMF to be slowed by as much as 2.7 percent in 2016.
To combat this slumped outlook, IMF experts say the GCC countries must change their economic vision and strategy. IMF Deputy Director of the Middle East and Central Asia Department Adnan Mazarei told Gulf News Journal that growth in the private-sector will become key in job creation.
“Many countries in the region have simply not been growing fast enough to create the jobs needed for a young and expanding labor force,” Mazarei told Gulf News Journal. “Governments can help by improving the operating environment for businesses. Key measures include governance reforms targeting transparency and accountability of public institutions, improving access to finance – especially for small and medium enterprises (SMEs), reducing skill mismatches for private sector jobs through education and training and reforming labor market regulations to encourage freer movement of labor while protecting workers and increasing female labor force participation.”
Though the IMF projects an improved global economy in coming years, GCC countries may not experience the same fortune.
“Oil importers, which are a diverse group, are as a whole likely to see improved economic growth in 2016 and the medium term, including in Morocco and in Egypt, if the current pressures are handled well,” Mazarei said, “But they are also facing headwinds from slower growth in many of the emerging market trading partners, higher global interest rates and spillovers from conflicts and security challenges within the region.”
In order to prevail, the IMF says GCC countries must recognize the forecasted economic outlook and use their financial reserves to gradually transition into this slumped growth period. IMF officials say the countries must reduce spending and diversify their economies away from the public sector immediately. Countries must also prepare themselves for increased interest rates from the United States.
Two exceptions to the dismal outlook in the Middle East could be Iran and Iraq, Mazarei told Gulf News Journal. In Iran, relief from sanctions could boost growth and in Iraq, growth could resume if security in the country stabilizes.
In the last decade, growth in the region averaged 5 percent annually, according to the IMF – and even then, most of the population saw none of it. During that time, youth unemployment in the region was the highest in the world, and most youth lacked access to bank credit.
The IMF says it is now focused on creating “medium-term growth,” creating jobs and increasing living standards.
“This is a historical and important moment for the Middle East. These societies are dealing with many different pressures, be it Internal or external, social, political or economical in nature,” Mazarei said. “As they forge their path to more inclusive and just societies, these countries need to reconcile decades-old deficiencies at a time when, unfortunately, the political space to undertake reform may be significantly constrained.”