GCC reforms remain on track despite pandemic, economists say
GCC authorities have implemented a range of appropriate measures to mitigate the economic damage, including fiscal packages, relaxation of monetary and macro-prudential rules, and the injection of liquidity into the banking system
LONDON: The coronavirus pandemic has highlighted the economic challenges facing nations in the Gulf region but has not changed the direction of their economies, experts told a web conference on Wednesday.
The comments came during an event on the Gulf Cooperation Council’s (GCC) economic prospects for 2021, hosted by Chatham House in London.
Tim Callen, assistant director of the Middle East and Central Asia department at the International Monetary Fund (IMF), said GCC countries experienced two significant shocks in 2020: the COVID-19 pandemic and disruptions in oil prices.
Cases of the virus peaked in the region around the middle of the year, in response to which GCC countries implemented stringent lockdowns and imposed travel restrictions. The number of cases began to fall, and lockdowns were eased, which supported the economic recovery in the second half of the year.
“GCC authorities have implemented a range of appropriate measures to mitigate the economic damage, including fiscal packages, relaxation of monetary and macro-prudential rules, and the injection of liquidity into the banking system,” the IMF said in a report, published in December, on how Gulf nations are addressing the two challenges.
There has been another spike in COVID-19 cases since the start of 2021, particularly in the UAE, which has led to even tighter preventative measures that have further affected economic activity. On the other hand some countries in the region are excelling in terms of vaccination rollouts, compared with the wider global situation.
Most countries experienced a big drop in growth in the first half of 2020, with the biggest hit taken in the second quarter. This was followed, in most cases, by a rebound in the third quarter. Data released by Saudi Arabia on Wednesday suggested the recovery continued into Q4.
Callen, who serves as the IMF’s mission chief for Saudi Arabia, said: “After seeing negative growth in in 2020, we are expecting a rebound in 2021.”
While oil prices recently reached their highest levels since before the pandemic, largely thanks to a Saudi cut in supply, in the long term the IMF forecasts lower oil revenues and so government spending will be strained.
“The good news is that some countries have already implemented adjustments,” Callen said. However, he added that this will “require sustained fiscal reforms that look across the gamut of the government wage bill, energy prices in the system, non-oil, tax revenue bases — and not all of the countries have yet introduced a value added tax, for example,”.
Karen Young, a resident scholar at the American Enterprise Institute, said: “The policy shifts that we are seeing in 2020 are a continuation of what has been underway since 2015” and is part of an ongoing trajectory.