Oil-rich Gulf countries face further economic strain as crude prices remain low, requiring them to cut back spending and raise money other ways, the heads of the International Monetary Fund and the US Treasury have said in recent visits to the region.
Both IMF Managing Director Christine Lagarde and Treasury Secretary Jacob Lew traveled to Saudi Arabia to speak to the kingdom’s rulers, as well as other officials of a regional bloc called the Gulf Cooperation Council.
The nations face increasing strains on their petroleum- powered budgets. Oil prices, above USD 100 a barrel in mid- 2014, have been halved since and now trade under USD 50. That’s forced countries in the region to abandon or slow construction projects, cut salaries and benefits and combine government ventures.
Yesterday, Lagarde said more needs to be done in Gulf countries, including lifting expensive government subsidies on fuel and starting a region-wide value-added tax. While every country in the region has cut back some on fuel subsidies, Lagarde warned that prices remain too artificially low. The region-wide value-added tax also likely remains years away from being implemented.
“The reforms that the GCC countries have been implementing over the past year in response to the decline in oil prices are impressive,” Lagarde said in prepared remarks. “Continued fiscal adjustment will be needed over the medium term.”
Lew today said the challenges provide an opportunity for the GCC “to diversify its economy, expand opportunities for your people and widen the financial base in order to make available additional resources to meet growing development needs.”
Lew also applauded efforts by Gulf countries to cut funding to militant groups.