GCC policymakers must navigate a challenging and uncertain landscape as the pandemic continues to cloud the global outlook and countries are in different phases of recovery, with varied growth prospects and policy space, IMF said in an assessment of the GCC economies.
The Fund noted that GCC policymakers moved quickly to mitigate the health and economic impacts of twin COVID-19 and oil price shocks. Infection rates have declined across the GCC to well below previous peaks, though countries have experienced successive waves of the virus, and economic recoveries have begun to take hold.
Protecting public health and supporting the most vulnerable remain the top priority for GCC policymakers. Vaccination rollout for all residents should continue, while contingency health plans should be in place to respond to any recurrent virus outbreaks. Macroeconomic policies should remain accommodative until recoveries are firmly established, it said.
Fiscal support has been critical and should be maintained as needed to avoid long-lasting crisis effects and mitigate social impacts, and increasingly targeted to ensure its efficiency and contain fiscal burdens. Where policy space is more limited, targeted support should be maintained, while identifying fiscal savings from cutting or reallocating non-priority spending.
Macro-financial policies to ensure liquidity and spur credit growth should be extended, as needed, while increasingly targeted to viable firms and complemented by close monitoring of financial stability risks.
As the COVID-19 crisis abates and economic recoveries are well-established, policies should address medium- and long-term challenges made more pressing by the pandemic: Fiscal policy should be geared toward achieving growth friendly consolidation with the aim to ensure long-term fiscal and external sustainability.
To this end, priority should be given to strengthening fiscal frameworks, further mobilizing non-oil revenues, and increasing spending efficiency. With higher oil prices, procyclical spending should be avoided, and the windfall used to rebuild policy space, IMF suggested.
Ensuring financial stability and a dynamic financial sector is key for a smooth recovery and sustained strong economic growth. Overall, financial sectors appear sound and able to support the recovery and structural transformation, but current stress, legacy risks and emerging vulnerabilities need to be managed, including by strengthening the insolvency and resolution frameworks, reinstating some prudential measures eased during the crisis, and stepping up supervisory efforts.
Economies are vulnerable to risks of scarring from the COVID-19 crisis and over the longer-term declining oil global demand as the world confronts climate change. Ongoing reforms to drive productivity and diversification should be accelerated, including raising female labour force participation, increasing flexibility for expatriate workers, improving education quality, further leveraging technology, enhancing regulatory frameworks, deepening regional integration, and addressing climate change.
