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Could Gulf Countries Run Out Of Money Before They Run Out Of Oil?


Derrick, Puits de petrole, Koweit

Undated photo of a Kuwaiti oil well (Photo: Dominique BERBAIN/Gamma-Rapho via Getty Images)


Gamma-Rapho via Getty Images

Gulf Cooperation Council governments– a bloc of six countries comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE which together produce more than a fifth of the global oil supply – have all launched ambitious plans to diversify their economies away from oil and gas. The most high-profile effort is probably Saudi Arabia’s Vision 2030 program, championed by controversial Crown Prince Mohammed bin Salman, but it is a path all six countries are heading down.

However, despite such initiatives, oil and gas remains a central element for the region’s economies and there has been limited progress in developing non-oil, private sector activities. The IMF points out that, even where there has been progress on this front, much of the non-oil economic activity indirectly relies on hydrocarbons, via public or private spending of oil-derived wealth.

The IMF report recognizes the Gulf countries are aware of such issues and have been adjusting their budgets to take account of the challenging environment they find themselves in. “However, the expected speed and size of these consolidations in most countries may not be sufficient to stabilize their wealth. These adjustments need to be accelerated and sus­tained over a long period of time,” the report warns.

The IMF also recommends that, alongside the diversification efforts, Gulf governments need to raise more revenue from taxes and cut government spending. “Governments will likely need to downsize,” it warns.

The report does not venture into political commentary, but there is a clear underlying danger to this latter point. The idea of a smaller state is a delicate one for the region, given the implicit social contract between the autocratic regimes of the Gulf and their citizens, in which ruling families untrammeled power but in return offer a cradle-to-grave welfare system.

Ultimately, though, regional leaders may find they have few choices. The IMF says the region can either reform now or leave the task to future generations. Either way, change will have to come at some point. Otherwise, the money really will run out.

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Middle East countries could run out of money long before they run out of oil, according to a stark warning issued by the International Monetary Fund (IMF) in a report today.

The Washington-based organisation says global oil demand is likely to peak around 2040, although it could happen much sooner if there is a concerted global effort to address climate change issues and faster improvements in energy efficiency.

That means the clock is ticking for Gulf oil exporters to fundamentally rebalance their economies. However, the IMF says that, without more significant reforms than those already announced, the financial wealth of Saudi Arabia, Kuwait, the UAE and others could be depleted by 2034.

“Oil-exporting countries may need to be ready for a post-oil future sooner rather than later,” says the report, called The Future of Oil and Fiscal Sustainability in the GCC Region.

Gulf Cooperation Council governments– a bloc of six countries comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE which together produce more than a fifth of the global oil supply – have all launched ambitious plans to diversify their economies away from oil and gas. The most high-profile effort is probably Saudi Arabia’s Vision 2030 program, championed by controversial Crown Prince Mohammed bin Salman, but it is a path all six countries are heading down.

However, despite such initiatives, oil and gas remains a central element for the region’s economies and there has been limited progress in developing non-oil, private sector activities. The IMF points out that, even where there has been progress on this front, much of the non-oil economic activity indirectly relies on hydrocarbons, via public or private spending of oil-derived wealth.

The IMF report recognizes the Gulf countries are aware of such issues and have been adjusting their budgets to take account of the challenging environment they find themselves in. “However, the expected speed and size of these consolidations in most countries may not be sufficient to stabilize their wealth. These adjustments need to be accelerated and sus­tained over a long period of time,” the report warns.

The IMF also recommends that, alongside the diversification efforts, Gulf governments need to raise more revenue from taxes and cut government spending. “Governments will likely need to downsize,” it warns.

The report does not venture into political commentary, but there is a clear underlying danger to this latter point. The idea of a smaller state is a delicate one for the region, given the implicit social contract between the autocratic regimes of the Gulf and their citizens, in which ruling families untrammeled power but in return offer a cradle-to-grave welfare system.

Ultimately, though, regional leaders may find they have few choices. The IMF says the region can either reform now or leave the task to future generations. Either way, change will have to come at some point. Otherwise, the money really will run out.

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