Dubai- Oil-exporting Arab states of the Gulf are heading “in the right direction” to plug budgetary gaps thanks to fiscal reforms but more change is still necessary, IMF regional chief Jihad Azour told AFP in an interview Tuesday.
“This is going in the right direction,” said Azour, who was in Dubai to launch the IMF update for its regional Economic Outlook for the Middle East and central Asia. He affirmed that “if they continue on this path in the next three to five years, the level of deficit will be less than 2 percent of gross domestic product.”
“Fiscal adjustment is still needed. Additional reforms are still needed, especially on the structural side,” Azour said.
This would be “in order to diversify the economy and to allow the economy to grow outside the oil sector, to create additional jobs as well as to be less dependent on the volatility in the oil market,” he added.
“The Saudi government made strong fiscal adjustments over the past two years and was able to reduce expenditure,” he said, adding that Riyadh has renewed its commitment to achieve a fiscal balance in 2020.
“Given the level of buffers that Saudi has, they can phase in a more progressive way their fiscal adjustment and they can space it over time,” Azour added.
Azour said imposing VAT is an “important move” that will help diversify revenues outside oil and help strengthen tax institutions.
The regional report shows that non-oil growth in the GCC is projected to strengthen from almost 1.9 percent in 2016 to three percent this year.
“In the GCC, the oil sector was affected by the cut in production. However, the non-oil sector grew,” IMF regional chief said, adding that the “2017 outcome is showing in fact that the non-oil sector is gaining more growth potential and recovering faster than the oil sector.”