The regional economic outlook in the Middle East and North Africa (MENA) will remain weak in 2017 and 2018 in response to falling oil revenues. GDP growth rate in the GCC has fallen, this year it will be 1.7% with little recovery in 2017 but indicating much slower growth than in previous years.
Crude oil price is unlikely to see any sharp recovery in medium term. Being traded between $40 and $50 a barrel this year, it is expected to remain below $60 over the next five years. In this scenario, the GCC projects market may suffer a sharp slowdown coupled with prolonged recovery in coming years.
The GCC governments have now begun to show fiscal deterioration and are estimated to need a total of $765 billion to finance deficits between 2015 and 2021, according to IMF. The hydrocarbon budget revenues are projected to be lower by $400 billion in 2016 than in 2014.
In order to balance budgets, the GCC is focussing on various deficit-reduction plans including fiscal-consolidation and economy diversification. To bring down the deficit further, the region has also introduced taxation and cuts on subsidies and public sector wages.
However, several other factors like stabilizing regional politics, improving business environment and increasing foreign investment will also play a key role in facilitating economic growth.
The UAE stands out in these difficult times by adopting a diversified approach over the past two decades, which lessens its reliance on oil revenues. Saudi Arabia’s impressive National Transformation Programme aimed at diversifying economy away from oil and promoting private sector will have far-reaching effect on overall development.
The region now needs to implement its plans quickly. Although, to push ahead in today’s turbulent oil market condition and unsettling security situation will be challenging for the authorities.