Gulf Cooperation Council countries must reduce state spending even further and implement taxes to cope with the period of low oil prices, the International Monetary Fund chief has urged.
Speaking at an Abu Dhabi conference on Monday, IMF managing director Christine Lagarde said that she was certain the GCC states could make the required adjustments.
“GCC economies have made large fiscal adjustments in the past, and I am confident that they can do it again,” she said.
“Most GCC countries are now in a position where they can pace their adjustment over several years and thus limit the impact on growth,” she added.
According to the IMF, oil exporters in the Middle East and North Africa region lost more than $340bn in revenues in 2015 because of low oil prices. That’s equal to 20 per cent of their combined gross domestic product.
“Oil prices have fallen by two-thirds from their most recent peak but supply and demand-side factors suggest they are likely to stay low for an extended period,” Lagarde said.
“The size and likely persistence of this external shock means that all oil exporters will have to adjust by reducing spending and increasing revenue.”
Most of the Gulf countries have already announced spending cuts. Meanwhile they are holding discussions to implement a region-wide value added tax.
Expected to be in place by 2018, VAT is estimated to be charged at between 3 per cent to 5 per cent.
“Even at a low single-digit rate, such a tax could raise up to 2 per cent of GDP,” said Lagarde.
“Add to this greater emphasis on corporate income taxes as well as property and excise taxes. And continue to invest in building tax administration capacity that could eventually allow for introduction of personal income taxes,” she added.