Call to speed up GCC fiscal reforms

Dubai - Oil prices are likely to decline further in 2016, impacting the revenues of oil exporting countries.

Gulf countries and other major Middle East oil producers need to speed up fiscal reforms, including the introduction of taxes, to ensure economic diversification and to bring in the much-needed stability and investor confidence, economists said at the Arab Strategy Forum on Tuesday.
Masood Ahmed, the International Monetary Fund's Middle East director, said to counter a persistent low oil price scenario, the GCC and other major regional oil producers need to make "hard decisions", including introducing a value added tax and reviewing capital projects.
Predicting that 2016 is going to be just as tough as 2015, IMF officials said the biggest challenge for oil-exporting countries next year will be to continue to adjust to the impact of low oil prices. Ahmed also called for the removal of energy subsidies, pointing out that the region's oil exporters faced $300 billion drop in revenues in 2015 alone, accounting for one-fifth of their economy.
"They face a combined deficit of nearly $1 trillion between 2015 and 2020 compared to a $650 billion surplus between 2009 and 2013," he said, forecasting oil prices to record gradual increases to average at $60 a barrel by 2020.
Salam Fayyad, former prime minister of Palestine, said Arab countries need to take greater control of their currency exchange rates as part of a broad range of economic reforms, including the introduction of new taxes that are aimed at driving economic diversification.
At a discussion on "The State of the Arab World Economy in 2016", along with Mahmoud Mohieldin, the World Bank's corporate secretary, Fayyad described Arab currency exchange rate stability as an illusion.
"It is very important that we talk freely about this issue, without restrictions. We should examine this issue in a quiet and considered way. No one can force us to change but when we talk about the Arab world and the countries making up this region, we need to focus on letting go of currency stability. This will significantly benefit the economic diversification the region is striving to achieve today."
Looking ahead to 2016 and beyond, the forum identified key factors that could influence the Arab world economies in 2016 and beyond.
Oil prices are likely to decline further in 2016, impacting the revenues of oil exporting countries. Stressing that the Arab world cannot be classified as one holistic market, Moheildin said that non-oil-exporting countries are yet to see any benefits from the drop in oil prices. He added that lowering of oil prices could however prove beneficial to oil exporting nations by incentivising governments to accelerate the pace of economic reform and diversification to mitigate their impact.
Describing the present 1970s tax structure in the Arab world as outdated, Fayyad said there is an urgent requirement for tax reform, especially in GCC countries. In addition to the much talked-about introduction of VAT, Fayyad said governments should consider a range of new taxes, including corporate and real estate taxes. The implementation of a range of taxes would not only contribute to economic diversification, but also bring in the much-needed economic stability and investor confidence in the region.
The discussions concluded on a hopeful note that 2016 could be the year that witnesses an end to conflict in the Middle East, heralding a period of reconstruction. "Post-war governments will need huge support. We need to focus on quick actions which can be implemented in months and not cost billions of dollars in order to lay solid foundations for political, social and economic stability in the region," Fayyad said.
- issacjohn@khaleejtimes.com