The significant deficit-reduction efforts which began last year continue and fiscal consolidation is particularly sizable in Oman and Saudi Arabia, according to the International Monetary Fund (IMF).
In these two countries, non-oil deficits are projected to fall by more than 10 percentage points of non-oil GDP. In 2017, the pace of consolidation is expected to ease to about 1 per cent of non-oil GDP.
The increasing international sovereign debt issuance this year, together with the tapping of international markets by government-related entities and the private sector, will help fund the current account shortfalls, the report says. Privatisation and structural reforms to increase participation by foreign investors in the region will further support capital inflows. The international agency notes that Oman has drafted a foreign investment law to attract investors.
Energy price reforms are also being implemented. The 2016 January–July average prices for diesel in Oman and the UAE and for natural gas in Oman and Bahrain are very close to or above US price levels.
To reduce the dampening effect on growth, countries need to phase in the additional deficit-reduction measures gradually, while strengthening the medium-term fiscal framework. To ensure steady gradual implementation, deficit-reduction measures should be embedded in a well-defined, medium-term fiscal framework that incorporates the overarching fiscal objectives and consideration could also be given to the potential role of fiscal rules, according to IMF.