The GCC or Gulf Cooperation Council region has saw a year of inadequate economic performance in the year 2017.However,according to the World Bank’s biannual Gulf Economic Monitor, there is hope and the growth will take an upward turn in 2018 and 2019.
The economies of the GCC region saw a downward trend or a flat growth.The reasons for this were a tighter fiscal policy and lesser oil production, which affected the activity in the so-called non-oil sector. However, the external debt issuance spiked up to finance the huge fiscal deficits.
But the economic growth is now expected to go up gradually. The recent recovery in energy prices, though partial, and the termination of oil production cuts post 2018, and are duction of the fiscal austerity.
The World Bank’s estimate of growth comes to 2.1 percent in the current year, which is expected to rise even more to 2.7 percent in the year 2019. Growth in Saudi Arabia is also projected to bounce back to around 2 percent in 2018-19.
Nadir Mohammed, the World Bank’s country director for the GCC said, “Policy attention is shifting towards deeper structural reforms needed to sever the region’s longer-term fortunes from those of the energy sector.”
“While the recent increase in oil prices provides some breathing space, policy makers should guard against complacency and instead double down on reforms needed to breathe new life into sluggish domestic economies, to create jobs for young people and to diversify the economic base. Any slippage could negatively impact the credibility of the policy framework and dampen investor sentiment.”
Though the fiscal and current account balances have seen growth and improvement, this region is still facing some financing requirements and is still vulnerable to changes in the global risk sentiment and the funding cost.The implementation of the country’s reform plans needs to be robust to hold upall the benefits of better structural reforms and fiscal adjustment, which aim to expand their economies.
Over the long term, the lasting dominance of the hydrocarbon sector in the GCC economies battles for the dynamic implementation of the structural reforms. The structural reforms ideally should be focused on the following: development of the private sector, economic diversification, and labor market and the fiscal reforms. The long-term ambitions of the GCC states are expressed in various countries’ vision statements and their investment plans and aim to develop competitive economies that will utilize all the talents of their people, said the report.The implementation of these structural transformation guidelines or programs needs a continuous political commitment on part of the GCC governments.
Saudi Arabia has already come put with its 12 “vision realization plans” that are associated with its Vision 2030 aspirations. It aims to largely transform their economy in the coming 15 years by aiming to lift the private sector of the economy from current 40 to 65 percent.It also aims to take the small and medium enterprises’ contribution to GDP from the current 20 to 35 percent, said the World Bank report.
Kevin Carey, the practice manager at the World Bank said, “Transforming from an oil-dependent economy to a self-propelled, human capital-oriented one requires some fundamental changes in the mindset; some also call this a new social contract.”
“GCC countries do not need to discard their existing social contracts but rather to upgrade them to reflect new realities of low for long oil prices, increasing global competition and the long-term threats from technological and climate change.”
Some other Arab countries of the GCC states also have other challenges such as equity,sustainability and welfare related to the pension systems. Some of the solutions to improve pension outcomes could be improving the overall efficiency by bringing down the current fragmentation in many of the GCC pension systems.The access and contributions should be simplified and made more systematic by strengthening their ID and IT systems and also the capabilities of the pension administration bodies.The governance of pension institutions should also be strengthened.
If the GCC countries aim to attract all the global talent and think of company formation in GCC, they need to consider possible solutions for expatriates that would help them meet their pension and financial security needs, said the report.
