Publication - Economic Prospects and Policy Challenges for the GCC Countrie - Annual Meeting of Ministers of Finance and Central Bank Governors
EXECUTIVE SUMMARY1
Global recovery remains restrained. In contrast with the subdued growth in advanced countries, growth in emerging markets and developing economies recorded a slight pick-up over the first half of 2016.
The outcome of the U.K. referendum on E.U. membership has entailed the realization of an important downside risk which has increased uncertainty, although market reaction has generally been contained. Sentiment has improved for emerging market and developing economies, reflecting diminished concerns about the Chinese economy, some recovery in commodity prices, and expectations of lower interest rates in advanced economies. Global growth is projected at 3.1 percent this year, its slowest pace since 2009.
Downside risks to continue to dominate. Growth is expected to remain weak in the GCC region, while fiscal and external balances have deteriorated. Staff projects that GCC economies will grow by 1.7 percent in 2016 compared to 3.4 percent in 2015, before a modest rebound to 2.3 percent in 2017. Despite the adoption of consolidation measures, projected fiscal deficits remain large in both the short and the medium term. The aggregate current account balance is projected to remain in deficit at 3.7 percent of GDP in 2016.
GCC policymakers continue to face a challenging environment with sustained low oil prices:
While the needed size and pace of adjustment varies across countries, fiscal consolidation over the medium-term needs to continue in all cases. Non-hydrocarbon revenues have the potential to be increased across the region. Other policy priorities include additional streamlining of current expenditures, including the public sector wage bill, increasing the efficiency of public investment, and additional energy price reforms, all while protecting the socially vulnerable.
Ensuring coherence in fiscal and monetary operations is needed to avoid further tightening of domestic liquidity. In particular, it will be necessary to step-up monitoring of the banking sector and ensure effective liquidity-assistance frameworks. NPLs are also expected to rise with the slowing in growth.
Countries need to accelerate structural reforms to diversify their economies away from hydrocarbons and boost the role of the private sector.
Despite the progress so far, further measures to improve the business environment and to diversify and expand the role of the private sector are needed. All countries have formulated strategic development plans. These plans should be developed into actionable measures, sequenced and implemented.
Labor market policies deserve special attention, with the large youth population facing the biggest challenge. A related challenge that is holding back talent utilization pertains to the low female labor force participation rate. Education and training programs are particularly important.
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