Analysts say GCC states should make structural reforms to diversify their economies hit by drop in oil prices.
Yasar Jarrar, Partner Advisor with Bain & Company, said that, although it had been on the table for several years, the countries in the region have not yet diversified yet. He added that 50 per cent of GDP still comes from oil revenues.
“Barring Dubai and few other spots, the economies in the region have not seen much diversification. The need of the hour is a shift from traditional government-led economy to diversified private-led economy. The model of ‘government spending and private sector taking the money and thus economy runs’ will not work anymore,” says Jarrar.
He said the region has high diversification potential and, although it built the infrastructure to boost non-oil sector growth, it needs increased participation from the private sector, which should now come forward to embrace risks.
The governments, he says, must upgrade the legal and judicial system to boost the confidence of the private companies in the region.
Jaime de Piniés Bianchi, Senior Consultant at the World Bank, also says GCC economies must accelerate and implement programmes to rationalise public expenditures and to expand non-oil revenues.
The International Monetary Fund (IMF) has projected that GDP growth in the GCC is expected to decline from 3.3 percent in 2015 to 2.8 per cent next year. The six GCC states are also expected to post a fiscal deficit of 13.2 per cent, which will only marginally reduce to 12.6 per cent in 2016. Last year, the GCC posted a 2.9 per cent fiscal surplus.
The fund has urged the economies in the region to adjust their fiscal policies in the wake of the decline in the price of oil and the continuing and persisting uncertainty over recovery projections (IMF expects the 2015 oil price to be $52 a barrel, increasing gradually to roughly $63 by 2020).
Meanwhile, Mohammed Abdullah Al Gergawi, Minister of Cabinet Affairs of the UAE, said that the UAE has been diversifying its economy for the past ten years. On the sidelines of the World Economic Forum’s Global Agenda Summit held in Abu Dhabi, he remarked that oil was no longer as relevant for the country and that it constitutes a small portion of the country’s economy, whereas the majority of the UAE’s revenue comes from the tourism, service, industrial and financial sectors.
Majed Al Mansoori, Chairman of the Abu Dhabi Department of Economic Development, said Abu Dhabi too has adopted diversification at the heart of its growth strategy and is planning to reduce the contribution of oil to its GDP from 50 per cent currently to 40 per cent by 2030.